Pru highlights tax dangers of RDR
The implementation of the retail distribution review could have serious tax implications for clients, Matthew Stephens has warned.
The head of technical product and sales for Prudential said the proposals could leave clients vulnerable to an unwanted income or capital gains tax bill if advisers were not fully aware of the implications involved in adviser charging.
Mr Stephens said adviser charging meant a partial surrender of investments that can leave clients with tax liability, and advisers needed to understand the workings of the tax system affecting clients from January 2013.
He added: “There’s a fundamental difference between adviser charging and commission. Where the adviser charge is facilitated from the product or investment, there is a knock-on effect on the tax implications for clients’ investments, whether they are bonds, investment funds or pensions.
“A client could end up paying income tax or CGT as a result of adviser charges coming out. It is vital that advisers understand how this works and the potential impact that it could have so that their clients do not suffer from unexpected tax bills, and inadvertently end up worse off.”
Patrick Connolly, head of communications for Somerset-based AWD Chase de Vere, said: “While I agree that advisers need to take care regarding tax liabilities, I don’t think the client’s tax burden will change after RDR.
“An IFA will do the right job for their client and the advice will be right for the client based on their tax position. What you may find though is that some higher-tax products, such as investment bonds, will probably be recommended less, with more emphasis on products such as unit trusts.”