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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

Regulator brings in tough new rules for financial advice

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.

Adviser types

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.’

Further Reading:

If you want to find out more about RDR and finding a good financial adviser, check out these guides:

7 comments so far. Why not have your say?

john williams

Jan 02, 2013 at 15:18

Will existing arrangements with IFAs continue or will they have to be rejigged?

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Mr B-Mused

Jan 02, 2013 at 15:32

JW - they will continue but making any changes may affect they way your IFA gets paid (if he/she is receiving an on-going commission that is). If you have regular contact with your IFA, I'm sure they will explain all!

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The ssinnic

Jan 02, 2013 at 16:01

I reckon it will spawn a whole world of " do it yourself" schemes and a great many more tearful stories. But the good side will be that there won't be any further need for the FOS, because there will be nothing to go wrong and so nothing for them to make their wonderful judgements upon....Oh! and PI insurance will be so cheap they will be giving it away! That's what they are telling us!

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Ian Lewthwaite

Jan 02, 2013 at 17:17

Is the "new" regulation body really new or is it just musical chairs for the "boys and girls" of the FSA, or their friends in PWC.

Their fairnessand equity I feel will be tainted by the judge& jury and executioner , answerable to no one stance of the FSA

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Jan 02, 2013 at 21:03

Ian. The FCA and PRA will be created as the FSA effectively divorces itself on 1st April 2013. Both will be staffed by the same employees as at the FSA on 31st March.

The worst example of jobs for the boys" is that of Hector Sants, a former banker who became head of the FSA, oversaw the failed regulation of banks in the last few years, left last March and has recently been appointed head of compliance at Barclays. Poacher turned gamekeeper turned poacher? Has just been knighted in the New Year's Honours.

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J Thomas

Jan 03, 2013 at 16:34

There is still no legal transparency in the way discount brokers such as HL etc make their millions.

You have to dig very deep for this as the brokers certainly don't inform you and do everything in their power to conceal the practice.

It is of course the 5% bid/offer spread which is applied to the well known funds which the brokers keep all to themselves.

I'm glad I found out about the practice before I considered investing.

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Jan 03, 2013 at 20:43

@J Thomas. You have highlighted a good case in point because execution only services can still earn commissions rather than have to provide "adviser charging" as with IFAs offering advised propositions. You may find it more cost effective to purchase funds on an investment platform through a firm such as ours because the funds are bought at institutional rates ie close to 0% bid/offer in most cases so any implementation charge is going to be a lot less than the bid/offer spread if you go direct. Fund managers will however be reducing their initial retail prices over the next 12 months so it will be very important to check what share class you are buying. And yes as an advisory firm we do provide clients the ability to "DIY"; we generally find some advice and assistance is required even if it is only to give a second opinion.

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