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How to meet the RDR

Advisers need the right procedures to realise objectives

Many financial advisers are uncertain about their business outlook and operations for the future in light of the retail distribution review.

These concerns have turned into confusion for a large number of advisers and time is running out to scrutinise and understand the review and, in particular, the platform-related issues.

The RDR proposals are designed to ensure adviser firms will not continue receiving commission, profit share or other remuneration determined by product providers and other third parties.

Platforms administer around £110bn in assets and about half of all new retail fund investment business is placed through them. The latest review looked at whether firms that advise customers to invest through platforms give suitable advice and have adequate systems and controls to support that advice. Currently, we do not regulate platforms as designated investments but when platforms are operated or used, they generally involve one or more regulated activities. For example, operating a platform may involve dealing as an agent, arranging investment deals or safeguarding and administering assets.

The RDR found evidence of poor practice in all the key risk areas assessed. Results varied but the high incidence of failings at some firms underlined the need for vigilance.

The main reason for unsuitable advice was inadequacies when considering the overall solution, including combined cost of funds, products, platform and advice. The review found evidence of weak systems and controls at many firms, highlighting the need for advisers to review and implement strong oversight and management functions when introducing platforms into their business model. Enhanced initial due diligence on the platform of choice needs to be robust and appropriately recorded.

The review found several firms which had successfully integrated platforms into their businesses while consistently offering advice that was in their customers’ best interests.

The review stated that a platform is a service, not a product but they can display product features and the platform operator may also be a product provider or closely associated with one.

Ideally, the RDR would like to accomplish platform services that do not undermine the RDR objectives, especially concerning advisercharging.

Platforms will not provide incentives to adviser firms which result in customers incurring additional costs from unnecessary switching of investments on to or between platforms and customers are provided with a clear description of platform charges and the services they receive.

What does this mean for advisers and how can they achieve the RDR’s objectives?

It is vital that advisers have the right procedures to create an ideal business structure that will accommodate all the objectives of the RDR. There is help available, it is just about finding the right help that will fit with your business.

Advisers need to look into ways to make their business as compliance-friendly as possible. With all the changes taking place, it is going to a long process and one that will require a lot of attention.

Dean Curtis is managing director of Wolters Kluwer Financial Services


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