Retail Distribution Review (RDR)

It has now been a month since the long awaited introduction of the Retail Distribution Review (RDR).

The new legislation introduced by the Financial Services Authority (FSA) has outlawed the payment of commission to financial advisers on all advice relating to investments pensions and annuities. Previously the cost of advice would be paid up front by the investment or pension provider as commission, with this cost recouped from the investor through the initial and ongoing charges.

From 1st January any advice now has to be paid for either by writing the adviser a cheque or having an agreed amount deducted up front from the investment or pension before it is invested.

As the insurance companies no longer have to fund the cost of commission you would naturally assume that the charges on post RDR investments will be less than prior to January 2013. Well it appears that many are dragging their heals in acknowledging this fact and IFAs around the country are not impressed.

Almost 700 advisers have sent an open letter to the FSA raising their concerns of consumer detriment arising from RDR and in particular they have warned of potential double charging by fund managers, pension and annuity providers.

In the letter they said, “The RDR was largely justified by claims that the removal of commission as a form of remuneration would somehow ensure that mis-selling would disappear and be replaced by products that contained lower costs and charges, thus enabling consumers to afford to direct part of their intended investment to paying for advice from a newly-professional species of IFA.”

The letter warned that without action from the FSA or its imminent replacement, the Financial Conduct Authority (FCA), that fund managers will be retaining money to boost their profits rather offset what would have previously paid for commission to advisers.

One company has even increased it charges post RDR claiming that they can no longer claim the payment of commission as a business expense and have therefore been “forced” to hike their costs.

Pay extra attention to the charges on any new investments you make especially if you are paying an adviser separately for the advice you receive.