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Regulator brings in tough new rules for financial advice
The Financial Services Authority has put new rules into force that protect consumers taking financial advice.
by Michelle McGagh on Jan 02, 2013 at 09:33
New rules that make financial advice more transparent and aim to reduce mis-selling have come into force.
The retail distribution review (RDR), which is the Financial Services Authority’s (FSA’s) most extensive policy project ever, came into play on Monday.
Linda Woodall, head of investment intermediaries at the FSA, said the changes will ‘improve consumer confidence’.
The RDR rules focus on three areas which the regulator hopes will improve the quality of advice, reduce mis-selling and build trust in financial advisers.
Paying for advice
Under the new rules the cost of advice must be made clear to consumers. Although advice has never been free many people believe it is because the adviser has taken a commission from the product. The cost of the product has often obscured the cost of advice and so consumers do not understand what their investment is really costing them.
To counter this the FSA has banned commission payments from product providers to advisers. Instead advisers have to explain their costs upfront and how the costs will be paid for. This will ensure the advice given is in the consumer’s best interest not the advisers.
The FSA has raised the minimum professional standard for advisers, meaning they have to have a certain level of qualification and undertake regular training to keep their knowledge up to date with 35 hours of continuous professional development each year.
Advisers will also have to subscribe to a code of ethics and hold a statement of professional standing from an accredited body.
Advisers will now have to distinguish themselves as either independent or restricted. Independent advisers can consider all types of investments from across the whole market when investing for consumers.
A restricted adviser will only be able to recommend certain products, for example pensions, or products from a limited range of providers.
Woodall said: ‘The changes will improve customer confidence – we want people to feel that they are getting a service from their financial adviser that is relevant to their circumstances and their best interests.
‘These changes are about making the cost of advice clearer, 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.’
If you want to find out more about RDR and finding a good financial adviser, check out these guides:
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