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Commission ban pushes up bills

For most, the passing of 2013 will not have had much significance, but for those who use a financial adviser there will have been big changes.

The retail distribution review (RDR) came into effect at the turn of the year, after years of preparation, bringing in higher qualification standards for financial advisers and a ban on commission for investment products. Another benefit of the RDR is improved transparency, which will enable investors to see what and how much they are paying.

The ban on commission – one of the more contentious issues – has had a number of ramifications for financial advice. Previously, advisers were able to use commission to lower the cost of financial advice.

Some argue that the new regulatory regime means less wealthy investors may be prohibited from accessing financial advice at higher costs, while other advisers drop the clients who are unable to generate the revenue.

“Many independent financial advisers have decided to focus exclusively on providing services to wealthier clients,” says Patrick Connolly, head of communications at advisory firm AWD Chase de Vere.

The ban on commission – one of the more contentious issues – has had a number of ramifications for financial advice

“These clients will benefit from an adviser who is able to act in their best interests at all times, and provide them with unbiased and unrestricted access to all appropriate advice and planning solutions.”

The removal of commission bias to certain products and providers is a benefit for wealthier clients who are now more likely to access a wider range of products. Mr Connolly adds that previously non-commission products, such as exchange-traded products, passive funds and investment trusts, are likely to be more widely used.

“Most important for high-net-worth individuals (HNWIs) is getting an ongoing service they value enough to pay for,” he says. “Charges and returns will be important elements of this.”

There are, of course, other ways to access advice for investors with larger sums to invest.

Many banks, and private banks in particular, offer services for HNWIs, while others might decide on using a wealth manager, who can offer a wider range of advice incorporating issues such as taxation.

In terms of asset allocation, it remains to be seen which areas HNWIs are considering. According to the Wealth Report published by Knight Frank and Citi Private Bank, HNWIs held 21 per cent of their portfolios in equities and 21 per cent in bonds.

With the current rally in equities markets and the low yields offered by bonds, it’s likely investors will change allocations in 2013.

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