Monthly Archives November 2010

Getting My Head Around RDR

I’m trying to find a succinct and comprehensive explanation of RDR and what it means for consumers but so far I’m struggling so I’m going to try and piece something together from what I can find which, is mostly how it will affect advisers.

Interesting that a change to the investment market that is intended to benefit the consumer does not appear to be very well publicised. In fact, I searched for it on the FSA consumer website Moneymadeclear and I couldn’t find anything.

I think quite a few people would be grateful if the FSA started to make the public more aware of what to expect.

RDR = Retail Distribution Review

In the words of the FSA:

“We launched the Retail Distribution Review (RDR) in June 2006 to address the many persistent problems we had observed in what is now, over 21 years of regulation of the retail investment market. Insufficient consumer trust and confidence in the products and services supplied by the market lie at the root of what we are seeking to address.”

And to plagiarise another source : (http://www.eacg.co.uk/media/documents/Retail_Distribution_Review_Feedback_Statement.pdf)

The FSA proposes to build confidence and trust by:-

• Providing greater clarity for consumers about the advice service being offered. There will be a clear distinction between independent advice and sales advice and a natural link with the proposed free Money Guidance service.

• Raising professional standards of all advisers. To boost consumers’ confidence in the industry new minimum qualifications will apply for different types of advice and as a major development there will be a Professional Standards Board.

• Modernising the way advice is paid for by removing the possibility of commission-bias and ensuring the cost of all advice is clear to consumers whenever it is given.

• Introducing a new standard for independent advice by ensuring advice is unbiased unrestricted and extends to all types of investments. Independent advisers must agree the cost of financial advice with customers up-front.

So that all sounds very nice but it doesn’t explain how any of it will be achieved so by taking each point and expanding with what I have found out so far….

1/ Providing greater clarity for consumers about the advice service being offered. There will be a clear distinction between independent advice and sales advice and a natural link with the proposed free Money Guidance service.

To achieve this, advisers will describe the advice they provide as either ‘independent’ or ‘restricted’.

2/ Raising professional standards of all advisers. To boost consumers’ confidence in the industry new minimum qualifications will apply for different types of advice and as a major development there will be a Professional Standards Board.

Fairly self explanatory. Advisers will need to be more highly qualified to provide advice and have specific qualifications to advice in specialist areas.

3/ Modernising the way advice is paid for by removing the possibility of commission-bias and ensuring the cost of all advice is clear to consumers whenever it is given.

This is good for consumers because in the past, advisers have been known to sell a product that pays higher commission and makes them more money instead of a product that is of the most benefit to the consumer. However, this also means advisers will no longer receive commission from product providers which is currently how they earn a living.

4/ Introducing a new standard for independent advice by ensuring advice is unbiased unrestricted and extends to all types of investments. Independent advisers must agree the cost of financial advice with customers up-front.

This is how advisers will earn a living after the changes take effect, by charging the consumer a fee for the advice/service.

Sounds OK but there is considerable debate about the true benefit of the proposals.

There can be no argument that taking away commission bias will be good for consumers but many predict that charging a fee for advice will result in a very high percentage of former customers going to high street banks where they don’t have to pay but they wont get advice, just the banks own products.

This will actually restrict peoples access to the full range of financial products on the market instead of making them more accessible which, is one of the key concerns of the review.

It is a concern that truly Independent Financial Advice could become something reserved for the wealthy.

This is a concern (mainly of advisers) because historically commission can be very good and advisers want to earn the same levels of income which means charging a high fee. 

By charging a low fee to a lot of people a firm of advisers could conduct higher volumes of business and keep turnover up but there would be more work involved so earnings are still likely to be reduced.

Making financial products accessible to the public in a fair manner appears to be the main concern of the FSA, not how much advisers stand to make.

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I Forgot to Mention

On the 22nd of October I passed the Investments & Risk module of the IFS Certificate in Financial Advice (CeFA).

This is the IFS qualification that is needed to be recognised as an IFA and until 2012 the 4 modules are:

  • UK financial services industry, regulation and ethics
  • investments and risk
  • protection
  • retirement planning
  • After 2012 the Diploma in Financial Advice (DipFA) will be required to continue working as an IFA.

    So, I’m pleased I’ve got the recent exams out of the way but there’s still a way to go!

    I’ve already received and started on the next module ‘Retirement Planning & Protection’ (2 more exams).

    Once that’s out of the way there’s another Module ‘Assessment of Investment Advice Knowledge’ followed by a 2 hour exam that tests the application of all previously aquired knowledge.

    At that point I can start to gain more practical knowledge but as the DipFA takes 9 months to complete I need to get started on that by March 2011.

    And it’s already mid-November!

    Some people say it’s not a good time to get into the industry because of new regulation and an impending overhaul that is threatening to cause major upset and from what I’ve read and discussed with others it certainly sounds like that is going to be the case. (See next post – still in progress!)

    But as I have quite a keen interest in the industry and I’m already well on my way I have no intention of stopping now and even if the industry collapses at least I’ll  have learned something!

    All I have to do now is squeeze it into my routine.

    It’s 7.15 on a Wednesday evening and I think I’ll finish early for a change…

    Boosting your savings: a simple guide to ISAs

    UK based savers searching for the best savings rates for their money should first make sure that they’re taking advantage of their ISA (Individual Savings Account) allowance. While interest earned from money in an instant access savings account is taxable, cash ISAs offer the opportunity for tax-free savings – up to a point.

    The current limit for cash ISAs sits at £5,100 per person per tax year – and it’s worth filling that wherever possible as unused allowances don’t roll over to the following year. You can add to your ISA in chunks throughout the year as many times as you like, paying as little or as much as you like, so long as you don’t exceed the limit.

    The other main benefit to using ISAs is that your savings will be available to you instantly should you need to access them – and making a withdrawal doesn’t affect the tax benefits on the rest of your savings. One important thing to note, however, is that if you withdraw some money it doesn’t mean your deposit limit gets topped back up for the year. So if you’ve deposited £2,000 over the year and decide to take £1,000 out, your remaining deposit limit is still a further £3,100 – not £4,100 as some people make the mistake of assuming. Once you put money into your ISA that portion of your allowance is gone for the year, whether you subsequently withdraw that cash or not.

    Stocks and shares ISAs are also available. If you’ve filled your cash ISA and have more to invest over the tax year then you are able to use a further £5,100 in stocks and shares to complete your overall £10,200 ISA allowance. Or, if you prefer, you can use the whole amount for stocks and shares (although this obviously means you will have no tax-free cash savings) or split across the two however you see fit, so long as the cash ISA portion is no higher than £5,100.

    Once your ISA allowance is used up then its time to look elsewhere if you have more to save. Shop around for the best savings rates in terms of instant access savings accounts or perhaps consider a fixed rate savings bond if you can afford to put some money away for a set period of time.

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    I’ll be 78 When Oil Runs Out

    I’ve just been introduced to http://www.worldometers.info/  “a really interesting website with live world statistics on population, government and economics, society and media, environment, food, water, energy and health. Interesting statistics with world population clock, forest loss this year, carbon dioxide co2 emission, world hunger data, energy consumed, and a lot more”.

    According to Worldometers, oil only has 15,364 days left. That’s 42 years.

    That means anyone aged 50 or less has a reasonable chance of outliving oil reserves and seeing a vast amount of change in the world in the coming years.

    How old will you be when oil runs out?

    I don’t know exactly how accurate the statistics are or the science behind oil exploration but with all the technology that exists I imagine ‘we’ have a pretty good idea of what resources are left which probably also includes potential future finds.

    So if 42 years is a realistic figure (give or take a few years) then huge change must happen; some change is already happening and there are bound to be some problems along the way.

    I’m not in the oil industry and although I work in financial services I don’t know how reliant any economy is on oil but because oil reserves are running out oil companies need to change direction and they are already investing heavily into alternatives.

    At some point in the very near future (prob from 2011 onwards – yes, that soon) we will start to see electric charging points popping up in services and other strategic locations (not sure about near petrol pumps though – mixing electricity and petrol supply in one location?).

    Electric cars are about to explode onto the market with almost every manufacturer developing hybrid and full electric vehicles (this is one aspect of the future I’m really looking forward to. I will be part of the generation who own 1st generation electric vehicles – can’t wait for my first electric motorbike!).

    But who will run the the charging points? Will we see petrol station forecourts turning into charging stations and instead of Shell and BP we’ll see names like npower, eon or Southern Electric?

    And if the juice is supplied by electricity companies then oil companies will surely shrink into shadows of their former selves just supplying certain niche industries?

    Or will the oil companies develop their own infrastructures to supply power they generate to their charging points?

    Will oil companies generate their own power and then rent established infrastructure from electricity providers?

    Will the existing infrastructure be able to cope with future demand? I somehow doubt it.

    Will familiar pylons be replaced by futuristic space-age alternatives that make everywhere look like a set from Buck Rogers?

    Will home generators become more popular and wipe out large chunks of electricity suppliers revenue?

    What will governments do to replace fuel taxes?

    So many issues to address and only 42 years to do it.

    Exciting times.

    Bye Sky Bye

    Leaving Sky and switching to BT.

    Thank you Sky for once again automatically upgrading my broadband to a service that costs £7.50 per month more just because you seem to think I’d gone over my paltry usage allowance for the second time in 6 months.

    And then to be told I have to stay on that package for at least 1 month before I can be downgraded!?

    So, let me get this straight. Sky upgrade me without giving me a choice to opt out until they’d charged me £12.50 for a months worth of service that I didn’t even want?

    Is that legal? Anybody…?

    I work online all day so when I get home I tend not to turn on a pc or go online unless I need to shop, check mail or have a bit of a browse.

    I don’t download music, films or watch much on YouTube. I just tend to browse and check email so I really struggle to believe I can use up my (massively generous) 2GB usage allowance.

    The Sky Usage Tool is rubbish. It only shows usage by month so it’s impossible to work out when the most usage occurred.

    This > Broadband Usage Calculator< helped me see that there is a very slim chance that ,with what I would consider ‘heavy’ usage, I might just squeak past the 2GB now and again.

    So, an extra £7.50 per month for the Sky Unlimited Broadband package.

    That’s on top of the TV subscription and my line rental and call package from BT.

    Line rental = £11 (I got a bit of a deal and also opted for paperless billing & paying by direct debit which makes it cheaper)

    Call package = £5 (anytime calls – not needed now as back in an office)

    Sky TV = £28 (couple of bundles and a movie pack)

    Sky Broadband – was £5 per month but now up to £12.50

    Monthly cost = £56.50

    Not worth it in my opinion.

    I know a lot of people pay more than that for Sky with all the channels and bells and whistles but I still refer to TV as ‘the idiots lantern’.

    And so, having decided that Sky and all their services can go whistle, what choices?

    Well, I’ve opted for BT all the way.

    I could have gone to Talk Talk for phone & broadband for just £19.03 per month including line rental, free evening & weekend calls and 40GB of monthly usage. Yes Sky, 40GB!!

    But if I did that I wouldn’t have any kind of TV package.

    I looked at Virgin but you don’t get much for your money and you have to pay extra to have a box that pauses, rewinds and records live TV.

    Virgin Media, sort that out! Extra? For technology that’s been around for a long time now?!

    So, BT.

    They have an offer that makes line rental £9.49 if you pay for 12 months in advance. (I’m happy to do that but I wonder what offer they’ll come up with to manipulate next quarters profit figures?)

    Then, Broadband with free evening and weekend calls is £13.99 per month but the first 3 months are free (making it work out to about £10.50 per month over 1 year)

    The BT Vision Bronze package (which I consider to be equivalent to the package I had from Sky) is £7.50 per month for 3 months then £14.99 thereafter (equivalent to £13.12 per month)

    So let’s work that out:

    Line rental = £9.49

    Broadband and calls = £10.50 eqv.

    TV = £13.12 eqv.

    Total = £33.11 per month.

    And I’m going to get 10GB of usage allowance per month which isn’t as much as Talk Talk but it’s 5x more than Sky and I’ll be saving about £23.40 per month by comparison!

    That’s a saving of about £280 over the year!

    Oh, and here’s another tip.

    If you’re thinking of switching to BT, don’t buy the Phone, Broadband & TV bundle offer. It’s actually cheaper to buy the Broadband only offer and the TV only offer which works out about £2 per month less than the bundle. It’s also a slightly better package and you can order it all at the same time!

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