The way in which financial advisers provide professional advice is set to change with effect from 31 December 2012.
Intended to give consumers a fair and transparent deal when receiving financial advice for products such as pensions, ISAs and unit trusts, the Retail Distribution Review (RDR) will require all advisers to give their clients clear information on how much their advice costs and what they are paying for.
Three main principles will apply with regard to how financial advice is provided:
Commission for financial advice tends to be paid as a percentage of a client's actual investment, usually between 1% and 8%.
Under the new RDR rules, advisers will have to clearly explain how much their advice will cost and agree with clients as to how it will be paid, rather than commission being paid on new investments. All costs must be clearly presented to avoid any confusion or misinterpretation.
Clients will be able to negotiate with the adviser on the amount depending on their advice needs.
Payments can be a set fee paid upfront, although an agreement can be made with the adviser whereby the fee can be taken from the sum invested.
This way, consumers know exactly what they are paying for and know that the advice received is not influenced by how much their adviser could earn from the investment.
Financial advisers will either be able to advise clients on all products that may be appropriate or choose to focus on certain areas, such as pensions.
Advisers that provide 'independent' advice to consumers will have to consider all types of investment areas and can also consider products from all firms across the market.
An adviser that has chosen to offer 'restricted' advice will only consider certain products, product providers or both. Advisers will be required to give clients clear guidelines as to what they can advise on.
Advisers have had to increase their minimum professional standards of qualification under the new RDR requirements to ensure all knowledge is up to date.
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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