On 31st December 2012, the Retail Distribution Review (RDR) is being fully implemented for UK retail financial services firms.
This major regulatory shake-up will see financial advisers better qualified with more transparent charging structures and clearer definitions of their status.
With less than nine months until the implementation of these new rules, you might expect the vast majority of IFA firms to be ready.
Some new research published by the Financial Services Authority (FSA) suggests this is not the case.
Whilst over 70% of advisers have obtained a higher level qualification, only 39% have fully completed the qualification requirement by ‘gap filling’ their knowledge records and obtaining a Statement of Professional Standing.
This leaves six in ten financial advisers with a lot of work to do before the end of the year. Despite the years of notice about these new qualification requirements, it appears that many financial advisers have chosen to wait until the last minute to demonstrate their competence.
Another important area is adviser charging, where the FSA reports that 59% of firms have already made the transition to this new business model.
From 31st December, the cost of financial advice will need to be agreed between the adviser and investor before any work is carried out. Commission which is funded from the product charges paid by investors will be abolished on most investment and pension products.
Making the move to implement adviser charging in place of commission is a significant business challenge and we suspect that many firms will fail to manage this in the time that is left before the end of the year.
The FSA reports that larger firms, which includes banks and IFA networks, are lagging behind smaller firms. Only 32% of larger firms have put adviser charging business models in place, jeopardising their commercial future once the new rules are introduced.
Here at Informed Choice, we are ready for the Retail Distribution Review.
Our Financial Planners are all qualified to at least the new minimum standards and all hold a Statement of Professional Standing from the Chartered Insurance Institute.
We have operated on an adviser charging basis since 2004 and have no reliance on commission which is being abolished by the end of the year.
Whilst we hope that those firms that have failed so far to make the necessary progress are able to cross the RDR finish line later this year, this is looking increasingly unlikely (particularly for the bigger firms) as we get closer to the 31st December deadline.
Photo credit: Flickr/Su-Lin
