FT Adviser (23/05/2019) – It may seem like only recently when advisers did not charge their clients for their services exclusively, and could get commission from providers instead.
But it has already been seven years since the Retail Distribution Review – introduced in 2012- changed the way in which advisers were paid for their services.
RDR gave birth to adviser charging, a new feel model under which advisers were no longer paid commission and instead they recovered their fees through charging clients directly.
So how and why adviser charging come about?
The RDR was launched by the then Financial Services Authority, in 2006.
The reforms were intended to make the retail investment market work better for consumers.
The rules led to a rise in the minimum level of qualifications required by advisers, improved the transparency of charges and services and removed commission payments to advisers and platforms from product providers.
It also led to advisers having to disclose to their clients whether they are “restricted”, or “independent”. The latter means that they are able to recommend any provider in the market, while the former means the adviser can recommend the services of a limited number of providers.
Ricky Chan, director and chartered financial planner at IFS Wealth and Pensions, says: “Adviser charging (facilitation by the platform/product provider) came about as a direct result of RDR, which banned commission payments from investment and pension products to regulated financial advisers.”
He adds: “An adviser charge is an agreed fee for a professional advised service – it can be paid directly by invoice or facilitated through a product provider. Hence, regardless of how the fee is paid, it is a cost borne by the client.”
Mr Chan says: “The FCA’s predecessor (FSA) were unhappy with certain elements of the retail investment market and the way products were designed and distributed, such as opaque product charges, poor consumer outcomes from commission payments mis-aligning advisers’ interests, and low professional qualifications and testing.”