RDR and the Death of Free Financial Advice in the UK

January 1, 2013 marked the death of free financial advice in the U.K. The Retail Distribution Review (“RDR” for short), went into full effect on that date. The RDR is a set of regulations put into place by the Financial Conduct Authority. The implementation of the RDR marked an excellent day in history for Britain as it created a better financial system for the country.

The RDR sets out three main objectives. Objective One states that the client is to be offered a transparent and fair charging system for financial advice. Objective Two states that the adviser must be clear about what services are being rendered and paid for by the client. Finally, Objective Three states the client must receive advice from highly respected professionals.

The first objective, a transparent and fair charging system from financial advisers, is a foundational shift in the intrinsic nature of financial advice in Britain. To set the record straight, there was never any such thing as free financial advice. Prior to January 1, 2013, most Britons thought there was free advice because the advisers, banks and stockbrokers have been paid by commissions taken from the product provider, not directly from the client. Britons have always paid for financial advice, now they must be told how much they pay for it, up front.

The second objective, establishing rules of clear reporting to the client, gives the client the details he or she needs to make informed financial decisions. The past has been riddled with less than reputable agents selling products that the client did not need and did not explain the product to the client. RDR puts an end to the financial product sellers pretending to be actual financial advisers. Now, when a client seeks financial advice from an Independent Financial Adviser in the UK, they can rest assured that they are paying for quality advice that they need and will understand instead of risking their wealth on a fly by night financial product with little or no benefit to them.

An integral part to the second objective is the newly required description of advice services. From 1 January 2013, all advisers must identify themselves as either independent or restricted. An independent adviser must consider all retail investment products, including unstructured products or no product, to provide their clients with the best advice from the entire range of investment options. A restricted adviser is one who restricts or limits their advice to a specific provider, provider set or product range. The independent or restricted nomenclature allows the client to better understand what type of advice they would be receiving from a specific adviser.

The third and final objective, which states the client must receive advice from highly respected professionals, sets up a certification system and clarifies who can give financial advice to clients. After January 1, 2013, any person giving financial advice to the British public must possess a Level 4 Diploma from a regulated and approved organisation such as the Chartered Insurance Institute or the Institute of Financial Services.

In conclusion, the RDR is an excellent step in restoring trust in the financial services industry. There was never any such thing as free financial advice. Potentially, the public could have been paying hidden costs and fees, in some cases without their knowledge. In most cases, the financial advice given was simply, “you need this specific investment product,” regardless of whether it was right advice or not in your best interests. With the introduction of RDR, those so-called advisers are gone.

Now, when you seek financial advice, you can only obtain it from highly trained financial advisers, whose only profession is to provide real financial advice. Real financial advice counsels you on whether you even need an investment product in the first place and if you do, instructs you fully on the risks and consequences of an investment product based upon your own attitude toward risk. The best financial advisers are independent lifestyle financial planners who determine your lifestyle financial goals before they develop a plan that includes lifelong strategies that may or may not include investment products to achieve those goals. All of this was possible through the introduction of the Retail Distribution Review.

‘Demand’ For Generic Financial Advice

There is a great need for a generic financial advisory service to be rolled out across Britain.

So claims Citizens Advice, following analysis of a pilot project it carried out with a number of independent financial advisers (IFAs) and the Personal Finance Society. Funded by Barclays and Aegon, the Moneyplan scheme saw some 30 IFAs offer face-to-face monetary advice at Citizens Advice branches throughout the country for free.

Following on from such guidance, it is possible that consumers will be able to secure access to cheap loans and other competitively-priced financial products, so helping them to get back on to their fiscal feet.

Overall, pensions, mortgages and investments were among the main areas consumers were looking for advice on. Insurance and understanding documents from money providers, which may include loan lenders, were also sources of requests for help with money.

With owner-occupiers, aged 50 years or above and who are on a relatively low income, making up the majority of clients using the Moneyplan service, the company advised that “the trigger” for causing people to seek out help with their finances often follows on from retirement, illness, bereavement or becoming redundant.

For those people concerned about handling their finances should they be affected by any of the above life-changing circumstances, a low-rate personal loan could be a means of financial assistance.

Findings from the initiative also revealed that more than half (55 per cent) of those seeking guidance were on a low income, earning less than 1,000 pounds per month. Meanwhile, 71 per cent of such people were shown to be over the age of 50, with 46 per cent reported to be living alone or in a couple who do not have any dependent children. In addition, just less than half (48 per cent) have a mortgage, with 31 per cent of those who go to Citizens Advice for help own their home outright.

Currently, the provision of generic fiscal advisory service is the subject of an independent review, headed by Otto Thoresen. Citizens Advice went on to report that there is “significant demand” for such assistance. However, the guidance institution suggested that many people often do not think about getting help from an IFA or believe that they may be unable to afford such advice.

Jackie Nowell, head of partnership development for Citizens Advice, said: “The results so far of partnering Citizens Advice Bureaux with IFAs in the Moneyplan project indicate both that there is a need for a national generic Find Cash Advance and that this is an effective model for delivering it. The range of issues presented to the IFAs is broad, but it appears that there is particular demand from those who may own their own homes, but have low incomes. This evidence emphasises that there is a gap in provision which needs to be addressed.”

From receiving comprehensive financial guidance, it is possible that people might be able to seek out competitively-priced personal loans, savings accounts, credit cards and other financial products with greater ease. Following on from advice on loans and other areas, people may find that they are able to get to grips with money more effectively. However it may be advisable to stick to the professionals when seeking help. A recent study by Birmingham Midshires indicated that 16 per cent of consumers have been given poor monetary advice from either a friend or family member, which has seen eight out of ten people suffer financially.

The Benefits of Taking Professional Financial Advice

Taking control of your finances can be an important step in securing your financial future. Taking professional financial advice can help you on your way.

Many of us will go through life without ever seeking financial advice from professional financial advisor, taking advice instead from friends, colleagues and online resources. While this may serve your needs to a certain extent you could be losing out.

You may want to seek professional financial advice if, for example:

1. You are considering taking out a mortgage

2. You are looking to join a pension scheme

3. You are looking for an insurance deal

4. You are considering taking an annuity

5. You are looking to make an investment

The financial market is a complex place, with a huge range of products available whatever kind of service you are looking for. From mortgages and investments to savings and pensions, the vast array of products in each of these areas can be bewildering when trying to find the option that will best suit your future financial needs, and this is where taking professional financial advice could help you.

There are three main types of financial advisor available. Those tied to one provider, those tied to a number of providers, and independent financial advisors. If you’re looking for financial advice that will help you to make sense of the full range of products available on the market, it is a good idea to seek out a reliable independent advisor.

You will usually need to pay for professional financial advice, so you should always make sure you understand what your advisor is going to charge for a service before proceeding. You should also check that any advice taken comes from a financial advisor who is registered with the Financial Services Authority.

Whether you are seeking specific advice or general advice for future savings and investments a professional independent financial advisor may be able to help you to get the best deal for your money.

It is an independent financial advisor’s job to have an excellent understanding of the market and to tailor their service to your needs. With new products coming onto the market every day this can save you a lot of trouble and ensure that the financial advice that you receive is coming from a knowledgeable source.

Taking professional advice from an independent financial advisor could help you to save money in the long run.