Are you Being Served?

The prospect of reading an article about the regulation of financial services might not fill you with excitement. Nevertheless, if you have wealth that is (or perhaps should be) professionally managed, some important changes have recently been implemented regarding how financial services are delivered to consumers.

If the costs incurred by your existing arrangements were not previously transparent the new regime should change this. Now is therefore a good time to evaluate what you are paying and assess whether you are getting value for your money. The changes stem from implementation of the Retail Distribution Review (RDR) conducted by the Financial Services Authority (FSA). Like most things that are spawned by Government and its quangos, there are both good and bad elements. However, as my view is that everyone will benefit if we all have a more positive view of the world in 2013, I am going to place greater emphasis on the good elements in this article.

In essence, the changes alter the definition and scope of services provided, define how such services are paid for and increase the minimum standard of competence for those who provide such services. Financial advisers now provide either an independent or restricted service. The former enables the adviser to consider all available types and sources of financial arrangement whilst the latter restricts the adviser to either or both of a limited range of products and sources. The key difference from the previous regime is that the adviser might offer different services for each advice area; for example, independent advice for investments yet restricted advice for pensions. The new rules require advisers to explain their status clearly and it is vital that consumers make sure that they understand the limitations or otherwise of the advice they are both requesting and receiving. Most good quality and professional advice firms have been operating on a fee basis for many years but the new regime enforces this approach for all future advice. It removes commission, which previously incentivised some advisers to bias their advice so that it favoured certain product types and product providers.

Enforcing the separation of adviser and product costs will lead to much greater consistency regarding price transparency. Advisers have never provided a ‘free’ service, but sadly many investors have been fooled into believing this.

Be aware that the new rules affect only new advice so you might have existing financial arrangements that will continue to exist under the old regime. This could mean that you are unwittingly paying for an ongoing service which you are not receiving. New minimum levels of qualification for advisers should help to weed out the ‘cowboy’ element of the sector that prioritised selling over advising. However, whilst a step in the right direction, the new requirement is not onerous enough to ensure your adviser is as knowledgeable as you need.

How do you rate a financial advisory service? To test whether you are getting what you deserve, ask yourself the following:

● Does your adviser properly understand your individual goals and aspirations? A good test of this is whether there is ongoing and indepth dialogue with your adviser on this subject as opposed to simply filling in a form.

● Does the service provided reflect your individuality?

● Is your strategy unique to you or are you getting something ‘off the shelf’?

● Are you getting value of money? In other words, is your adviser making more money for you than you are making for your adviser?

If you cannot answer ‘yes’ to all of the above or are unsure, you might like to take advantage of our offer to carry out a free and without obligation assessment of your current arrangements. This assessment will establish the scope of the service you currently receive, comment on the extent of individualisation and set out the costs you are incurring in relation to the benefits you are receiving. Please call Jane Thompson on 020 8339 7728 to arrange your assessment.

Clearly, should you subsequently ask us to provide you with advice we will need at that point to agree what the cost and scope of such advice would be.