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26 March 2010

FSA published PS10/6: Distribution of retail investments: Delivering the RDR - feedback to CP09/18 and final rules


The Financial Services Authority (FSA) has today published new rules that will remove commission bias from advice on retail investment products, helping to restore consumer confidence in this market.

The Retail Distribution Review (RDR) aims to put the customer in charge by providing them with vital information about the cost and nature of the advice they are receiving. They will be able agree the cost of that advice with their adviser, rather than it being decided by the provider of the product. From the end of 2012, firms will have to be upfront about how much they charge for their services, and no longer hide the cost of their advice behind the cost of a product.

In addition, firms will not be able to accept commission in return for recommending specific products. Consumers will know what they are buying upfront, how much it will cost them and also have the peace of mind that it was recommended to suit their needs.

The changes also mean firms offering independent advice will have to demonstrate that their recommendations are based on a comprehensive and unbiased analysis of the market, and that any product selection is made in their clients’ best interests. However, if a firm chooses to limit its product range to certain investments or strategies, then the services it offers are restricted, and this should be clearly set out for customers.

Paying upfront need not hinder consumers’ access to financial advice. If a customer feels they do not want, or cannot afford, to make an upfront payment, the product provider can facilitate the cost of the advice being included in the cost of a product. But the fundamental point is that the cost of the advice will be agreed between the consumer and the adviser, not between the adviser and the product provider.

Sheila Nicoll, FSA director, conduct policy: "If this market is to survive, and thrive in the future, people need to know their adviser is acting in their best interests, and is well qualified to carry out that role. Today’s new rules are designed to boost confidence and trust in the retail investment market by removing commission bias, actual or perceived, and exploding the myth that investment advice is free. It is vital that consumers know not only the cost of financial advice, but also its value. There is a need to reconnect the adviser and client, where one pays for the services of another, and without the distraction of commission. Only then can consumers have real confidence and trust in the advice they are receiving.”

Today’s policy statement is accompanied by a discussion paper on Platforms and a consultation paper on Pure Protection.

Press release


© FSA - Financial Services Authority


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