RDR FAQ

The FSA are keen to emphasis that despite rumours and press reports that RDR I still alive and kicking and will continue to be implemented. To assist with this they have anew section of Frequently Asked Questions related to RDR. I have selected a few of these How will customers pay for advice if itís not done through an up front fee Ė how would this work; how will this be different to the current situation? Advisers would need to agree their charges for financial advice (and how they will be paid) with customers up-front. Customers will still be able to ask for their adviserís charges to be paid out of their investments, if they wish, but this will just be a mechanism for making a payment rather than setting the amount. An adviser firmís charges will not vary according to which particular product provider it recommends. This will remove provider influence over adviser pay and the possibility of a provider incentivising advisers to recommend their products over others. In addition, our proposals require transparency regarding these payments Ė so, upfront, customers will be given information on how much advice will cost. Also, payments from a product or investment to a provider and then payments from a provider to the adviser would need to happen at the same time and be for the same amount, so customers will be able to see and understand the flow of money. What are you saying about factoring? Factoring is the practice of product providers advancing finance to adviser firms out of their own funds. This will not be allowed after 2012 under our proposals. Product providers will be able to pay across adviser charges from a customer's investments to an adviser firm to settle adviser charges, but this will be on a matched basis (i.e. product providers will not be able to advance payments to the adviser firm before it deducts them from the customerís investment). Adviser firms will remain free to arrange credit facilities for customers separately, if a customer wants this. And adviser firms will also still be able to set up factoring arrangements, or get loans of other sorts, with third parties. Are you going to allow trail commission to continue to exist? For business written after the end of 2012 advisers will only be able to charge an ongoing amount in return for an ongoing service. An important exception to this rule is where a client is purchasing a regular contribution product. In these circumstances, the adviser may choose to offer a charging arrangement where the client can pay over time, without an ongoing service needing to be provided. This approach will help to retain access to advice for customers who may not have the funds to pay for advice upfront. However, the cost of that advice and how it is to be paid will need to be agreed up front between the adviser and investor.

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