The introduction of rules set down by the Retail Distribution Review (RDR) means that financial advisors and sales staff will no longer be able to take payment through commission for policies that they sell.
The changes are designed to make the cost of financial advice more transparent for consumers. Linda Woodall from the Financial Services Authority (FSA) said:
"Where else would you buy something without knowing in advance how much it costs? Customers will now know how much advice is costing them, the service that they are receiving and be reassured that their adviser is qualified."
A statement from the FSA went on:
"We have banned commission payments from product providers to advisers. Advisers will have to clearly explain to the customer upfront how much advice will cost and how the customer will pay for it. This will ensure that the advice advisers give will be in the best interests of the customer, not driven by how much commission they could earn."
The Review has also raised the level of qualifcations required of advisors who will now need to an FSA code of ethical conduct and undertake regular training.
Following theimplementation of the review, there will be two levels of financial advisor available 'independent' and 'restricted', and advisors are now required to clearly advertise their services as such. Anyone trading as an ‘independent’ adviser will be able to consider and recommend products from all providers across the market based on the needs of the customer. Whereas an adviser with ‘restricted’ status can only offer certain products from a restricted numer of providers. Advisors will be required to clearly inform consumers of their status and any charges upfront and in a clear manner.
Linda Woodall of the Financial Services Authority said that the purpose of the Review is to make consumers "more confident about getting advice and trusting what [advisers] tell them; ensuring what [advisers] do is properly recognised as a profession by setting minimum standards”.
Nevertheless, concerns have been voiced that the implementation of RDR may mean that many individuals will be left unable or unwilling to pay upfront for financial advice even when necessary for more complex financial decisions.