58 | RETAIL DISTRIBUTION REVIEW WORDS | Candice Ritchie


Here comes the RDR B


ack in October 2010 (yes, that long ago!), OPP carried out an overview of the Retail Distribution Review (RDR). We looked at what it is, observed the changes it will place upon Independent Financial Advisors (IFAs), and spoke to several IFAs themselves to see what they think about the alterations. Now, as the regulations come into effect, OPP takes another look at the RDR. IFAs are momentous when it comes to offering advice about the overseas property industry, but the newly enforced Retail Distribution Review will alter the way in which IFAs operate. Initiated by the Financial Services Authority (FSA), the RDR will mean that the days of commission-led sales are no more, and replacing them will be pre-agreed fees. According to the guidelines, IFAs will also have to improve the clarity of the descriptions of their services and increase the professional standards of their investment advisors.


The new regulations will apply to all advisors in the retail investment market, from banks, to product providers and even wealth managers. The FSA believes that commission- led sales, based upon the value of the product, counteracts the advice being


‘independent’ and creates a bias. They see the changes as essential, and think that it will provide confi dence and trust in the market at a time when it’s needed – but confi dence for whom? From the moment the regulations were announced in 2010, to New Year 2013, when the regulations came into force, advisors all over the world were fi lled with anxiety.


Back in 2010, when OPP looked at the RDR, many of the advisors we spoke to voiced their thoughts on the cons of the regulations. Chris Wicks, Director at Bridgewater Financial Services Limited, suggested that the extra costs and burden of the regulations will cause most of the advisors to concentrate on the higher end of the market, and avoid giving advice to those with smaller incomes. Stewart Dick, Head of Sales at


Hornbuckle Mitchell, also said that the money alteration will have an impact; he said that clients will feel anxious about paying by fee and may feel that they cannot afford it, after commission-based payment options become redundant. Kevin Maddison, Chief Executive at ROPUK, believed that it will cause IFAs in fi nancial services to be fl awless in their activities, and any products that they have recommended will have


to be justifi ed. He also suggested that SIPP products will need to bring greater protection for clients, with the sales process being regulated, which could restrict their availability to the masses. He further pointed to the advertising of SIPP qualifying property products, which he believed will be restricted to FSA regulated businesses that have the right qualifi cations. Despite the negativity surrounding the RDR, many have pointed to positive


“Despite the negativity, many have pointed to positive implications”


implications of the regulations on overseas property investment. Some believe that it will reduce the number of fi nancial advisors in mainstream fi nancial services, forcing them to look for alternative sources of income, while others have pointed to the industry seeing fewer, but more qualifi ed IFA fi rms. Indeed, OPP spoke to Brad Lincoln, CEO at Best International, who said that “there are fewer IFAs who want to deal in property now, but those that do are of a higher quality, which


RDR


www.opp-connect.com | DEC 2012/JAN 2013


Time for a catch-up! OPP looked at the Retail Distribution Review all the way back in 2010. Now, as the regulations come into effect, Candice Ritchie takes a second glance at what will be an important change in the world of Independent Financial Advisors. Are we looking at a positive change or an additional burden?


means that our business is working with a more focused group of advisors.” Many others believe that the regulations may not have a signifi cant impact on the overseas property industry: IFAs involved in overseas property in SIPPs already charge fees and are thus already compliant with the RDR, while investments implemented outside of a pension fall outside of the regulations. Additionally, the new qualifi cation


Are you ready? | The beginning of 2013 heralds the enforcement of RDR... but how many advisers are prepared?


requirement is being implemented to improve the professionalism within fi nancial advice. Danny Cox, head of advice at Hargreaves Lansdown explained: “the level of qualifi cations required by fi nancial advisors will improve from the equivalent of an A level, to the equivalent of a fi rst year degree. Advisors will also have to sign a code of ethical conduct and agree to spend at least 35 hours a year keeping their knowledge up to date.” Undoubtedly, an improvement in expertise will prove nothing but benefi cial to the consumer, while at the same time the IFAs themselves are just gaining knowledge – not all that bad, eh? But as the new regulations come into force, is everyone ready? The FSA conducted interviews between 17th August 2012 and 3rd October 2012, looking at advisors’ progress towards achieving the professional qualifi cations required under the RDR. They found that 94% expect to attain their qualifi cations by 31st December 2012; 86% (30,800 advisors) held a relevant qualifi cation (qualifi ed to level 4 or above) and a further 10% (3,700 advisors) were waiting for the results of their fi nal exam or studying and; 76% (27,400 advisors) held both a qualifi cation and had completed any necessary gap-fi ll. The FSA also looked at whether the RDR will have an impact upon what advisors want to do next year in their careers, and found that 89% said they will defi nitely or are likely to remain an advisor. But who knows what will happen this year? 2013 will bring a mass of change to the way fi nancial services operate, and we can only predict the likely outcomes. Our advice: be prepared, be optimistic and perhaps the RDR will prove benefi cial on the industry, as opposed to a burden. Watch this space.


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