The Financial Services Board (FSB) is carrying out a Retail Distribution Review (RDR) to ensure that financial products and advice are fairer and to minimise conflicts of interest between consumers and product providers.
One of the RDR proposals is that product providers should no longer pay commission to financial advisers on investments; instead, advisers should charge fees for their services.
Currently, only one in three advisers charges fees, according to research by Masthead, a company that assists independent financial advisers with compliance.
Ian Middleton, the managing director of Masthead, says you need to be aware of this prospective change, so that, when the time comes, you are prepared to pay fees in lieu of commission. Since commission is a less obvious form of remuneration, you may be under the mistaken impression that the advice you are receiving is free.
Middleton says advisers need to communicate the value you will receive for the fees you pay. When you see that promise fulfilled, you will be as comfortable paying for financial advice as you are for any other service, he says.
Another RDR proposal is to compel advisers to declare whether they are “tied” agents (agents of financial product suppliers), or licensed advisers in their own right, who may be sole proprietors, or representatives of licensed advisory firms that are not also product suppliers.
Originally, the FSB proposed to categorise financial advisers based on the range of products they offer, but it has since been persuaded that freedom from product-supplier influence is a more meaningful determinant of independence than the range of products the adviser offers.
Although the FSB has proposed that tied agents be permitted to represent a single supplier, it is considering implementing a model used in India, where a tied adviser is able to act as the agent of one product supplier per line of business: for example, one product supplier for long-term risk products, another for short-term insurance products, another for savings and investment products, and so on.
The FSB is considering allowing “registered financial planners” to have the right to call themselves independent advisers, as long as no binder agreement, product-target arrangements, or ownership arrangements exist between the adviser and the product provider.
The RDR proposals will be implemented in phases. Revised drafts of the first proposals were due to be published for comment in April this year, with the changes coming into effect in the second half of the year. However, these deadlines have been pushed out to coincide with other legislative changes, and the FSB is now targeting January 2017 onwards. Consultation on the details of the changes will begin within the next few weeks, the FSB says.