The UK Changes
by Michelle McGagh 2nd Jan 2013, “citywire money”
The Financial Services Authority (FSA) in the United Kingdom starting 31/12/12 is implementing changes recommended by the retail distribution review (RDR) in three areas:
- Commission payments from product providers banned
- A higher standard of initial professional training, plus 35 days training annually, and agreement to a code of ethics
- Advisers to acknowledge relationship to product providers. Such advisers will be restricted in their product recommendations, compared with independent advisers.
Will these changes become a template for similar changes here in Australia?
An “idiot blogger’s” view
Certainly it is likely that our regulatory bodies, APRA and ASIC will seriously consider these changes. They should also consider alternative viewpoints, particularly those of the consumers.
Commissions based on a percentage of funds under management quickly erode capital. Fee for service is much fairer, but it is helpful for the customer to meet establishment costs by interest sacrifice in the first year of investment. Few could pay their fee otherwise.
Consumers would welcome a schedule of fees based on fee for service approved by the regulator.
Annual review of investments should also be based on fee for service. Again it would be helpful if the charge could be offset against future investment income.
Whilst training and ethical standards are important, clear-cut guidelines would define what is inappropriate. Advisers should form a view as to what the client can afford to lose, rather than on what clients say of their risk tolerance. Unacceptable retirement investments would include venture capital, property development, the use of derivative products, and investment in speculative shares.
The value of a well designed, balanced portfolio of direct shares by a well qualified adviser or broker could be recognized with an extra fee.
Aligned, Non-independent, advisers
I understand that financial advisers linked to corporate financial institutions usually do include products other than the in-house funds. If the client is aware of this bias, has opportunity to express disapproval, and the products recommended are reputable, this would not seem to be a problem.
However the value of independent advice would be better recognised with an added fee, not by limiting the product choice of the aligned adviser.
It is to be hoped that there will be adequate industry consultation before, not after, changing the present system.
- Financial advice market shake-up (standard.co.uk)
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