Investment and Pension specialist, Martyn Charlwood, reflects upon the Retail Distribution Review (RDR) almost 2 years on and the implications and benefits for consumers.
RDR came about because there was a lack of clarity regarding the different types of advisers, what they were able and qualified to advise upon and the associated costs. The objective was (and remains) to empower the consumer to make informed decisions as to with whom they wish to invest together with what the costs will be and what level of advice and service will be provided.
There are now two types of financial adviser i.e. ‘Independent’ or ‘Restricted’ and all institutions, firms and individuals have had to decide which they want to be. ‘Independent’ advisers are able to consider all types of retail investment products offered by all providers across the market. A ‘Restricted’ adviser can only recommend certain products or product providers. This means they might only offer products from one company, or just one type of product. The new labels are designed to make it immediately clear what an adviser offers and what that means in practice.
Regardless of their status, advisers can no longer be paid commission by providers so you will be charged a fee for advice and ongoing services, the cost of which can vary significantly. For example, restricted organisations such as St. James Place levy a 5% initial fee for unit trusts plus ongoing fees of up to 2.20% p.a. Someone investing £500,000.00 could therefore face an initial fee of £25,000.00 plus £11,000.00 p.a. By comparison, the total costs to set up a £500,000.00 unit trust portfolio with an Independent adviser (IFA) could be as low as £1,500.00 – a whopping £23,500.00 initial saving together with annual cost savings of thousands each year. What’s more, an IFA acts on behalf of the consumer to select and recommend what is most suitable and best value from the entire retail investment market whereas restricted advisers such as St. James Place act on behalf of the financial institution.
In summary, IFAs can offer a substantially lower cost investment offering together with access to superior investment returns, the combination of which can make a substantial difference to your investment and pension arrangements.
In todays’ investment market it has never been more important to establish if your adviser is as independent as you think they are! Are they delivering value for money or are they shoehorning you into an investment which suits them better than it does you? As Warren Buffett once said ‘Price is what you pay – Value is what you get’. If this isn’t the case then it’s time to look elsewhere!”