Compliance
UK Regulator Cracks Down On Commission Bias With New RDR Rules
The Financial Services Authority, the UK regulator, has published new rules which mean that firms will no longer be able to accept commission in return for recommending specific products.
The new regime, which forms part of the regulator’s Retail Distribution Review, will also compel financial advisors to tell clients up front how much they charge for their services and make clear how independent the advice being given is.
The new rules, which will come into force at the end of 2012, are intended to remove commission bias from the sale of retail investment products and help to restore consumer confidence in the industry, the FSA said in a statement.
After the RDR comes into force, firms which offer 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. Those firms that limit their offering to certain investments or strategies, and are therefore designated as “restricted”, will have to clearly set this out to clients.
The new rules also mean that the fees for advice will have to be agreed upfront with clients, a move which the FSA said will prevent firms from hiding the cost of their advice behind the cost of a product.
“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,” said Sheila Nicoll, FSA director, conduct policy.
“It is vital that consumers know not only the cost of financial advice, but also its value. There is a need to reconnect the advisor 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.”
Nicoll has also reportedly outlined the FSA's intention to prevent product providers from using platforms as a "workaround" enabling them to continue paying commission to advisors post-RDR.
