RDR – What it all means

‘Independent’ has always been a description that could only be used by those advisers who researched the whole financial market. Under RDR, the definition of ‘whole of market’ has expanded and will now cover areas such as ETFs, private equity and other more esoteric asset classes. An independent adviser must demonstrate they have considered all of these products in the process of addressing your financial requirements. If an adviser cannot meet the definition for independence, they will be deemed to be ‘restricted’ and will use a smaller range of investments in addressing your financial requirements.

Under new rules following the Retail Distribution Review, all financial advisers in the UK – whether they are described as ‘independent’ or ‘restricted’ – will have to achieve a higher minimum standard of qualification before they are allowed to provide advice. This means an increase in the basic level of knowledge and will lead to a higher level of professionalism for the industry as a whole. Many advisers are using the changing regulation as an opportunity to obtain qualifications beyond the minimum standard – for example to chartered or certified status.

In conjunction with other recent legislation, the Retail Distribution Review has specific rules about how clients should be treated and what information they should receive on an ongoing basis. Approved individuals within each advisory business are also legally accountable for ensuring those rules are followed. This provides you with the added reassurance your adviser’s business is being closely monitored within a regulatory framework.  In the unlikely event anything does go wrong, there is both a set process and a chain of personal accountability to ensure things are put right.

The Retail Distribution Review is causing advisers to change they way they do business. Many are moving to a financial planning rather than product recommending role. Now, rather than recommending specific funds, say, they are more likely to offer you a comprehensive financial plan and help you keep this on track as your life changes and develops. This will involve recommending a whole range of different products and solutions, depending on what your circumstances demand. Also, as part of the changing charging structure for advisers, you are likely to be able to pick through a menu of different advice options priced at different levels.

As part of the Retail Distribution Review, developments in financial-planning technology have taken the industry by storm. More secure, more flexible and more user-friendly systems mean the way in which your financial plans and products are checked and monitored has improved immensely. Many now have the ability to access information on your products and investments at the touch of a button. For example, instant portfolio valuations let you know if your plans are on track while detailed breakdowns of the assets mean you can realign your investments with your risk profile before any deviation gets out of hand.

Paul Dixon
Chartered Financial Planner