Did you know about new regulations which came into force from January 2013, called Retail Distribution Review (more commonly known as RDR)? As a result, financial advisers are no longer able to receive commission on pensions and investments; instead, they have to be transparent and discuss and agree their fees with the clients.
You may wonder why this could affect you, and it’s possible that you might not even be aware you have been affected, but in fact, a significant number of clients have recently been dropped (“orphaned”) by their own IFAs for no longer being profitable enough. However, your financial commitments to your pension or investment will continue, and as your IFA will continue to receive an annual trail commission from this, you can see why some (not all!) advisers don’t want to raise the issue and make the client aware. We would expect that most clients may want to move to better investments, which would be great for the client but bad news for the IFA as he/she would lose this trail commission, so very often the end result is that some clients are potentially stuck in a poor-performing investment.
These changes have caused chaos across the financial services industry as the new regulations have forced IFAs to undertake additional training and examinations. Not all IFA’s have taken on this new challenge, which has resulted in a number of IFA’s leaving the industry, thus leaving their clients without an adviser.
Many of the high street banks have also disbanded their IFA arm, or will have limited IFAs to look after their very high net worth clients. Hard to get an accurate figure, but we understand it could be thousands left without any financial advice. If you pick up the telephone at the moment to speak to your bank IFA, you will be told it may be up to six to eight weeks before a bank representative can contact you, particularly if you are looking for a mortgage.
The number of dentists who have effectively become “financial orphans” is unknown, but you may be one of them, so it is always worth checking with your IFA – an unreturned phone call should be a red flag to you.
However, there are some benefits of being financially orphaned:
The new rules mean there is a transparent charging structure which allows you, the client, to compare charges between IFAs and be confident that you are being advised on the best product for you rather than the highest trail commission for the IFA.
As the client, you can choose what type of service you would like from your IFA and can opt for either a one-off service or an initial review and ongoing service. Each service will come with a fee, but you will be made aware of the fee before signing up for any IFA services.
Under the new rules, advisers can choose the type of service they wish to provide and operate under, independent advice or restricted advice. Independent advice is, as the name says, advice from the whole of the market; restricted advice means that they may not offer products from the whole of the market and may work off a panel of providers for pensions and investments.
There is much activity on the internet on personal and professional insurances, and whilst it may be a useful guide, we always issue a word of caution, as we have had personal experience of dentists buying insurance from a website, thinking there is full cover and then discovering at their cost this may not be the case. For example, critical illness can be job-specific, and the fact that you can no longer work as a dentist but are still able to stock supermarket shelves can mean your critical illness cover will not kick in.
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