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RDR sets out three-way split for advice

The financial services industry will be split into independent advice, restricted advice and non-advised sales as part of the retail distribution review.

According to a late draft of the RDR consultation paper, seen by Money Marketing, trail commission will be known as “ongoing charges” and provider factoring will be prohibited.

Ongoing charges will only be allowed when there is an ongoing service to the client, except for when a client has an investment they make regular contributions to. The paper says that advisers will need to disclose exactly what service customers are paying for.

On factoring, the paper says providers will not be allowed to advance finance to advisers out of their own funds but consumers can arrange flexible ways to pay for advice through regular contributions without provider influence.

Firms will be able to offer independent advice, restricted advice and non-advised sales. Restricted advice will include single and multi-tied, simplified advice and basic advice.

Basic advice will be regulated advice which firms can use to sell stakeholder savings and investment products. It will include a streamlined sales process and pre-scripted questions without a full assessment of needs.

The paper says that adviser charging will apply to group personal pensions but only when potential members are given personal advice on the merits of joining.

The FSA is considering how adviser charging can apply when a GPP is sold without advice, with one possible option being “arranger charging”.

Syndaxi Chartered Financial Planners managing director Robert Reid says: “Clarity over the labels for the tiers of advice is welcome. It may, however, create a major problem for organisations with more than one channel to market.”

An alternative work-based assessment for advisers who do not want to take exams will also appear in the paper but industry experts warn it will not be an easy option.

The RDR paper is due to be published on Thursday this week. For full coverage see www.moneymarketing.co.uk

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