The primary aim of the Retail Distribution Review (RDR) is to ensure that advice and product distribution support the delivery of the FSB’s six Treating Customers Fairly (TCF) outcomes.
Jonathan Dixon, the FSB’s deputy executive officer of insurance, says many customers believe that advice is free.
On the flipside, advisers were not always adequately remunerated for advice, creating a “barrier to the professionalisation of the intermediary sector”, said Dixon.
Under RDR, fees will be activity based so that clients remunerate advisers for the upfront and ongoing advice they provide.
Product providers will then pay advisers separately according to charges disclosed upfront.
No cap on advice fees is envisaged, but benchmark rates monitored by product suppliers and regulators may be introduced.
A special remuneration dispensation for investment and risk products sold to lower income earners will also be introduced.
Dixon said product providers would be primarily responsible for ensuring their products were marketed and designed for fair outcomes, with intermediaries bearing a secondary onus.
The RDR discussion document will be released next month.
RDR will divide advisers into three must-disclose categories – independent financial advisers (IFA), multi-tied agents and tied agents.
A multi-tied agent covers most of the “independent intermediaries”, Dixon says.