RDR 2013 Adviser Fee Commission Explained
Commissions to be ‘Banned’ - This is Simply Not True
Much has been written about new rules on how commissions are to be banned when you seek financial advice from 2013. This is not true, it may be commission but with a new name called “adviser fees”. We thought it helpful to explain the three new different types of “advice” and what the payment options are.
As you may already know, we a 100% fee based advice firm.
1. Independent Advice:
The traditional model of whole of market advice but now must be based upon agreed adviser fee remuneration for the works involved with you rather than commission and offer a much wider range of products.
High level qualifications (level 4-6) are required to remain an independent adviser. ‘Chartered’ status is level 6 degree equivalent, but level 4 will be the minimum (comparable to ‘A’ level standard in our opinion).
Your Client Protection: Liability for advice is with the adviser i.e. you are fully Financial Ombudsman protected in case of mis-selling or complaint.
The adviser fee can be paid as a true fee or from the policy you take out. “Woops” does that look like commission in all but another name? It does to us.
2. Restricted Advice:
Financial Advice either based upon limited range of products sold due to qualifications or limited to the type of advice a firm wants to offer. This type of adviser will still need to agree an “adviser fee” with you.
Qualifications will still be required but perhaps not to the highest level such as a level 6 Chartered status but level 4 is still the minimum and subjects qualified in will control what areas an adviser can be involved in.
Your Client Protection: Liability for restricted advice is still with the restricted adviser firm i.e. you are fully Financial Ombudsman protected in case of mis-selling or complaint.
This model is very similar to solicitors where they specialise in family law or property conveyance or contract or litigation only but not all.
An adviser fee must still be agreed and can be paid as a true fee or from the policy you take out, much in the same was as Independent Advisers.
3. Non-Advised Sales:
The salesperson (not an adviser) does not have to comply with high level qualifications requirements. You usually answer a series of questions and are given a few options to choose from. You are given no advice whatsoever. You chose the policy or mortgage yourself.
Your Client Protection: There is no liability for advice as no advice was given and therefore no negligent advice Financial Ombudsman rights.
The salesperson (not an adviser) does not have to agree an adviser fee with you but can take full, sometimes disproportionately high, commissions without the need to agree these with you, it just needs to be disclosed in the "small print".
Many banks, insurers and online comparison sites, loan companies and mortgage companies use this model for in branch and online sales. Indeed, have you noticed how many now advertise their “financial planning managers” and not “financial advisers”?
Why? Would it be because no advice is given?
Contact us today for help complying with RDR.