Retail advisers’ RDR checklist

Given the wide-ranging nature of the RDR and the detailed complexity of the FSA rules, it is not surprising that many firms still have a lot of work to do to prepare themselves for the 31 December 2012 implementation date.

Obviously, the issues that each firm needs to focus on in developing and executing its RDR strategy will vary depending upon its business model, size, corporate group structure, client base and resources. Notwithstanding this, there are a number of key issues that all adviser firms need to think about, 10 of which are outlined below.

As a firm that advises retail clients on retail investment products:

• Do you also provide non-advisory services to such clients?

If the firm provides execution-only or discretionary services in relation to certain types of retail investment products (like unit trusts), it will continue to be subject to the FSA’s remaining ‘packaged product’ rules. Consequently, ‘full service’ firms will need to think about whether they wish to operate separate charging structures for their services and about the different disclosure requirements that apply. In addition, firms acting as discretionary managers need to determine whether their client take-on and investment processes ever result in their giving ‘personal recommendations’ to discretionary clients on retail investment products – if they do, is the firm in a position to apply the relevant RDR requirements to these limited advisory activities or can it restructure its business so as to prevent such recommendations from being given in the first place?

• Are you just an adviser for RDR purposes?

Even firms whose business is largely focused on providing advice to clients may end up being affected by other elements of the RDR. For example, if the firm provides custody and execution-only trading services in relation to more than one provider’s products, it will fall into the definition of a platform service provider and be subject to various disclosure requirements as regards any commissions received from product providers. Alternatively, if the firm is associated with a product provider (for example, because it acts as investment manager to the assets of a fund), it will be caught by the adviser charging rules that apply to product providers and will, consequently, be unable to pay commission to other advisers for distributing the product.

• Are you clear about which types of retail investment products you advise on?

While the RDR clearly applies to advice on collective investment schemes (both regulated and unregulated), investment trusts, pensions and life policies and Scarps, firms also need to determine whether they advise on any product that is likely to fall within the ‘catch all’ element of the retail investment product definition - “any other designated investment which offers exposure to underlying financial assets, in a packaged form which modifies that exposure when compared with a direct holding in the financial asset”. Depending upon the legal structure of the investment in question, this is likely to include ETFs, EIS funds and VCTs and may also extend to certain warrants and structured products.