RDR brings greater transparency of financial advice in the New Year

  The Retail Distribution Review (RDR) which comes into effect tomorrow will change the way investment advice is paid for.  Financial advisers will now take fees direct from consumers instead of in the form of commission from companies whose products they sell.


Those who have up until now believed that financial advice was somehow ‘free’ may be uncomfortable with this, but the changes are an admirable way to improve transparency. 

Advisers will no longer be tied to companies that offer the best commission and should end up offering a wider range of products to their clients.  Low cost funds such as trackers or EFTs should see a large uptake and consumers will have a clearer idea of how much they are paying and what they are getting in return.

The reforms will not suit everyone, putting pressure on actively managed funds, many of which charge too much for mediocre performance.  Fees across retail fund management could come down, bringing margins with them.  RDR also puts pressure on an industry that is already suffering.  According to Lipper, net inflows into UK-domiciled Unit Trusts have shrunk from £30bn in 2010 to £5bn in 2011 and 2012.  Life assurers may see protection products (where commission still applies) or workplace pensions as more lucrative areas for growth.  

Another risk to the industry is that many people may decline to pay for advice, preferring a ‘DIY’ approach to investing.  This may be fine for those who have the time and skill to do the research, but the financial services industry is still poor at explaining its products. The downside may be that people stay away altogether which would be an unfortunate consequence of a worthy reform.

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