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Retail Distribution Review (Intended to raise the standards investors can…
Retail Distribution Review
In June 2006, the FSA announced the RDR which had the specific aim of identifying and addressing the causes of problems in relation to the retail investment market
Intended to raise the standards investors can expect from all investment advisers and aimed to provide the following benefits
Consumers would better understand the advice service they are being offered
Independent advice would be truly independent and relate to a wider range of products
Adviser recommendations would not be influenced by the commission paid by product providers
Consumers would know upfront how much advice is costing them and how they would pay for it
Advisers would be better qualified and will keep their knowledge up to date
Three elements to the RDR
1) Adviser Charging:
this element aimed to ensure that consumers are offered a transparent and fair charging system for the advice they receive
2) Independent advice:
this element aimed to ensure that consumers are clear about the services that they receive
3) Professionalism:
this element aimed to ensure that consumers receive advice from highly respected professionals, thereby inspiring confidence and building trust
Rules to implement the 3 elements came into effect 31 December 2012
Elements apply to all advisers in the retail investment market, regardless of the firm they work for, whether it be banks, product providers, independent financial advisers, wealth managers or stockbrokers
Adviser charging
The reels set out that the advisers can set their own charges and can separately charge clients for their services
Product providers are now banned from offering commission to advisers
Charging structures must be based on level of service that advisers provide rather on a particular provider or product that they recommend
Advisers must be upfront with consumers in disclosing their charges and ongoing charges should only be levied where an ongoing service had been agreed with the client
Independent advice
The rules require advisers to clearly describe their services as either independent or restricted
If they declare themselves to be independent, they must consider a broader range of products beyond packaged products
Must be able to provide unbiased , unrestricted advice based on a comprehensive and fair analysis of the relevant market
Professionalism
The rules require that advisers hold a statement of professional standing issued by a body accredited by the FCA
Or hold an appropriate qualification (completing a gap fill which brings the qualification up to the desired standard where required)
Observe a code of either that advisers are subject to as an approved person
Impact on offshore centres
Although its only applicable in the UK, offshore centres have recognised the need to keep pace with the UK initiatives
Regulators in many offshore centres have made public statements informing organisations that conduct investment business about the actions that they will take to bring the legislation in their jurisdiction in line with the new standards imposed by the RDR
Jersey's response is known as the Review of Financial advice and implementing rules took effect on 1 January 2014
Isle of Man introduced RDR type competency requirements with effect from 1 January 2014