Shakeup of UK financial advisers set to impact expats
New schemes to revolutionise the way Britons pay for financial advice could impact expats who use UK-based financial advisors. From December the 31st this year the financial advisory industry is set for a major shakeup.
Under the Retail Distribution Review (RDR) created by the UK’s Financial Services Authority, financial advisors will no longer be able to take commission payments from life insurance companies or investment managers. Instead the advisors will now charge their clients a fee, but the fee can also be claimed from any returns on a client’s investment.
The point of the new proposals is to make the entire process more transparent and allow customers to clearly see what it is they are paying for.
The RDR will apply to all UK-regulated financial advisers and will affect all of their clients whether they are located in the United Kingdom or abroad. It also applies to all offshore as well as UK-based financial products and is particularly aimed at offshore investment bonds.
The basics of financial advice
Expats seek financial advice for a variety of reasons. Common reasons for engaging the services of a financial expert include risk-management, fund investment, financial management and to discuss a changing taxation status.
Many people believe that getting financial advice is somehow free; it isn’t, far from it. At the moment when you visit an advisor they give you advice which you would typically act upon. You don’t actively pay the person but that doesn’t mean they don’t receive some cash, they get their money from the product provider through commission. Commission bias means that you (the consumer) are often not recommended the best product. Instead you are offered the product provided by the best commission payer so that the financial advisor receives a larger cut.
How will RDR affect me?
This new RDR measure will have a significant effect on you as an expat. The main focus of RDR is you, you are the retail side of things and the focus of the financial services industry.
Hopefully from the 31st of December the changes implemented will mean that expats are no longer bombarded with promotions or sold completely useless products, and the usefulness of RDR for expats will step up a gear in January 2013. From that period financial advisors will no longer take commission from new sales, theoretically meaning that they will offer a better and more balanced service.
Although the charges they demand will change however (and probably won’t be cheap) it will probably cost you less in the long-term than the commissions you’ve previously paid over the years. A reasonable financial advisor will charge up to £500 for an initial review of your finances and will then charge around £150 per hour after that. The cheapest you could get will probably be around £75 an hour whilst the best in the industry could charge as much as £400.
Be aware of dodgy advisors
The RDR is good for another reason as it will ensure that the financial advisors out there are up to a suitable standard. An issue many have with the industry is that a few advisors have been less than reputable, often charging obscene amounts for terrible advice. From next year all advisors will need to show that they have a basic standard of education in the UK. This means that those dodgy advisors will be rooted out and hopefully should mean that a higher percentage of new style advisers will actually know what is going on in the investment world. The estimated 20% that do not meet those standards will have to classify themselves as restricted. This allows you as the customer to see who the best one is to use. An independent advisor will look at the entire market for the best products for you whereas a restricted won’t.
The new regime is due to come into force at the end of 2012 and it is expected that other nations will follow the UK’s lead over the next few years, to the benefit of expats worldwide.