The newspapers are full of the impact of the Retail Distribution Review (RDR) on pension advice.
The new rules mean that anyone giving Pension Advice has to agree a fee with their client rather than take a commission from the purchase of a product.
But the FSA has “scotched the snake not killed it”. There’s a big loophole in the RDR rules. It stems from another “polarisation” in the service that consumers can chose.
Recommended pension advice is where the adviser makes a formal recommendation to the client about which product is suitable. This is the “John Lewis” service. The adviser has to take responsibility for the decision and is obliged to make good on any loss suffered if something should goes wrong as a consequence of the advice given.
Limited pension advice provides guidance, quotes and explains terms that help a client buy a product. The big difference is that here the client has made the decision without recommended pension advice from an adviser. If anything is wrong with the choice then it is the client’s responsibility and not the adviser.
RDR applies to recommended advice and not to the limited advice which might be better described as information & guidance. It is called “non-advice” in the industry.
The strong likelihood is that all those advisers who can’t pass their exams and justify the value of the commission they take will just move into giving “free non-advice”.
Alan Higham, who owns Annuity Direct which provides Recommended advice, has been writing passionately on this, not just on his own blog but on Which’s website.
You won’t see the FSA writing about this. Why? Is it because they are embarrassed by this policy failure?
- Why we don’t need to fear a pension “advice gap”. (henrytapper.com)
- RDR and AE – what future for commissions and advisor-charging? (henrytapper.com)
- All change on pensions – a positive outlook for 2013! (henrytapper.com)
- Tsunami – make haste to higher ground! (henrytapper.com)