Financial advice has changed - what does it mean for you

On 31 December 2012 changes were made to the way you receive and pay for financial advice on investment products such as ISAs and pensions. These changes bring greater benefits, making it easier to understand and compare the different types of financial advice that are available as well as making the charges much more transparent. The changes are known as the Retail Distribution Review (RDR).

What are the new regulations around financial advice?

The new regulations introduced three important changes:

  • Transparent charges

Financial advisers will now explain how much their advice will cost and agree these charges with you before they carry out any work on your behalf. Some advisers may already be charging for their services in this way, so you may have an existing arrangement.

  • Definition of services

There are now clear distinctions around the type of advice that is available, making it easier to compare services. Financial advisers are either independent, if they provide advice on the whole market, or restricted, if they advise on a limited range of products or specialise in a particular area such as pensions.

  • Adviser qualifications

Financial advisers are required to hold a higher minimum qualification and commit to further professional development. They also need to hold a certificate, the Statement of Professional Standing (SPS), to demonstrate they meet these professional standards.

Why were they introduced?

The Financial Services Authority (FSA), now replaced by the Financial Conduct Authority (“FCA”) and the Prudential Regulation Authority (“PRA”), introduced these regulations so that consumers understand the charges and process for receiving financial advice. Hopefully, this will encourage more people to seek and benefit from advice that’s appropriate to their financial situation.

When did they come into force?

The new regulations came into force on 31 December 2012 - and affect any advice you received after 30 December 2012.

How have financial advisers charged for advice in the past?

While a growing number of advisers charged a fee for their advice, many were paid through commission from a product provider. The amount an adviser received through commission would have been disclosed to you, and deducted from the product that you hold.

How will a financial adviser charge for advice now?

From 31 December 2012 when the regulations were introduced, your adviser no longer receives commission when they sell a product. Instead they will discuss and agree a fee with you before they provide you with any advice.

This fee could be set as an hourly rate; a flat fee for carrying out a piece of work such as transferring a pension or reviewing your investments; or as a percentage of your investments. This will depend on the adviser.

Will this affect how I’m charged for products and investments I already hold?

The new regulations do not affect products that were sold before 31 December 2012 so your financial adviser will still receive commission where this is in place. But, if you do need advice on these products, your adviser may stop receiving commission and they will agree a new charging structure with you.

What will I pay for?

Plans to help you achieve your financial goals whether these are to build a pension pot; help your children with a financial head start in life; or find ways to reduce a future inheritance tax liability.

You can still access advice on less complex areas of financial planning such as selecting funds for your ISA or topping up your life assurance.

But, whether you have complex or more straightforward needs, the new regulations are designed to ensure you can continue to feel confident about the advice you receive.

How will I be asked to pay?

You can either pay upfront for the advice you receive, by writing a cheque or setting up a direct debit, or you can agree to have the cost of advice taken from your investments.

With both options, the cost of advice will always be clear and agreed with you before any work is carried out on your behalf.

What is the difference between independent and restricted advice?

Independent advice is based on an assessment of all of the market, without any restrictions or bias towards a particular product or company. Restricted advice only takes into account a focussed range of products from selected companies, either because the adviser has chosen to specialise in a particular area, for instance pensions, or because they only work with selected product providers.

Back to top