Shaun McGee at Fiserv outlines steps to prepare for RDR

Shaun McGee, senior product manager at Fiserv, outlines the near term challenges facing financial product distributors as the UK’s Retail Distribution Review deadline draws nearer.

With less than a year before the UK Retail Distribution Review (RDR) compliance deadline, the country’s Financial Services Authority (FSA) has completed its guidance by defining new rules for adviser charging and handling legacy assets and trail commission.

Advice practices in the United Kingdom must now ensure that they have processes in place that comply with all aspects of the ruling by year’s end. As promised, the regulations standardize retail investment advice practices and provide investors with more transparency into advisor fees and restricted investments. The anticipated result is that RDR will instil investor confidence in advisors and build trust at a time when markets are volatile and safeguarding the investor is more important than ever.

Revenue Management Opportunity

Investment services organizations should view RDR compliance as an opportunity to review fee and revenue management practices, and make certain that advice quality is not influenced by potential fees or commissions received. By clearly disclosing restricted versus independent advice and all related fees, advisers will rebuild investor confidence. No longer will investors need to be suspect about adviser motives or recurring commissions that result in unseen costs.

As firms strive to ensure compliance with the wide regulatory obligations and create RDR compliant products and practices, fee and revenue management solutions will come into focus. Technology can not only assist organizations with compliance, it can also facilitate long-term growth strategies through efficient processes and enhanced investor support.

Transparent Adviser Charges

In the FSA’s February 2012 review, it was confirmed that legacy assets which have a trail commission-ongoing commission paid to the adviser from the investment product company, regardless of whether or not ongoing service is involved-can remain in place until the products are terminated. For all non-legacy assets, once the RDR rules go into effect, all advice fees must be transparent and billed as adviser charges. For advisers to maintain an on-going charge, a continual service model must be in effect. The exceptions are advice related to life insurance products and advice provided on fund switching which permit trailing commission to continue. Once RDR is in place, if advice is offered to “top-up” an existing product, then it must be billed as adviser charging, with trail commission continuing as before.

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