You may not have heard about the Retail Distribution Review but will hear more over the coming months. Broadly, the Financial Services Authority has decreed that commissions will be replaced by fees, to start in January 2013. Openwork, the network under which our other company, The Financial Adviser Company (FAC) operates, has launched a pilot scheme to help firms to make the transition. As Essential Financial Management Ltd (EFM) has been charging fees for many years, FAC has been chosen as one of 15 firms in the network to work on the pilot that will be rolled out to the rest of the country later. I have agreed to this because it puts us on the front foot with regard to how this will work and it will mean that eligible clients will benefit earlier from the many advantages of this new system.
This is the time to remind you that EFM charges fees for research and personal financial management and FAC is used when a specific product, such as investment, is needed and it is remunerated by commission, some of which is returned to EFM to offset the fees which we have been able to keep at a very competitive level.
Some commissions will remain but clearly there will be much less and therefore little cross subsidy. We want to provide a competitively priced service and we believe that the new approach to funds under management will make the difference. For those eligible, their investments can be placed on a leading “wrap” which means that ISAs, bonds, pension funds etc will all be treated as one portfolio (whilst keeping their individual tax status) and therefore provide opportunities for cost savings and easier management. There is nothing for you to do at this stage – we are months away from implementation and I shall be using my personal funds first as the “guinea pig” and until I am happy that it is advantageous I shall not be recommending it to anyone.
