The key aims of the RDR are as follows:
• Improving clarity for consumers on the different service types on offer.
• Raising professional standards.
• Removing conflicts of interest inherent in remuneration practices and improving transparency of costs for advice.
Perhaps the greatest challenges faced by financial adviser firms is meeting the newer professional standards and defining the service levels they will provide, tailored to individual clients' needs, and how they will be paid for these services, with clients and advisers having to agree the cost at outset.
Integral to this is ensuring the service proposition for clients is such that any fees received are justifiable. We believe this can only benefit clients and advisers alike as it gives greater clarity to all.
RDR will also move advisers away from acting as stock/fund selectors, back to focusing on their core role, which should be to provide advice on an appropriate financial plan. For too long advisers have assumed the role of picking funds as part of their key role, when in fact growth should be a by-product of comprehensive financial planning.
Another key component in RDR is the capital adequacy level requirements for advisory firms to operate. They will have to be more robust which, again, can only provide further peace of mind. This, however, will inevitably lead to a challenge for a number of businesses.
Overall, at EIC we are supportive of the proposed changes (which we believe may well alter from what is currently proposed before we reach 31 December 2012) as transparency and understanding between clients and advisers will support long-standing relationships which are fundamental to financial services in general.
Whilst the positives far outweigh the negatives for clients, they too will need to be prepared to change; there may be changes to how client portfolios are managed and clients will also need to understand there will most likely be a change in how they pay for advice. We feel it is important to understand the implications of RDR, and to that end, I would suggest arranging a meeting with your adviser early in 2011. As ever, advice is essential. www.eicifa.co.uk