Over the coming months, if it has not happened already, your financial adviser will be changing the way they present the cost of their advice to you.
The fee v commission debate has gone on for long enough and common sense has prevailed. Regardless of whether you go to an independent adviser, a bank (why would you do that?), or anywhere else, there will be a fundamental change from pre-determined commission to agreed fees.
By 1st January 2013 every financial adviser in the country will have to agree with their client the level of fees for the advice they receive. In the past this just did not happen. All too often a client would walk through the door, discuss their needs, buy a product and invest the money, pay the premiums, take out the mortgage etc.
Commission was most likely talked about but you did not have to worry about that because that would be paid by the product provider. Great! You get advice and someone else pays for it! That sounds like a deal to me. Only that has never been the case. Since when has there been such a thing as a free lunch?
Insurance companies, mortgage providers, and investment houses do not pay commission out of the goodness of their hearts. They pay advisers commission from the money you give them. One way or another you have always funded the cost of advice, it just was not that easy to decipher. This lack of transparency is what is about to change very quickly.
On 1 January 2013 the Retail Distribution Review (RDR) will come into effect and commission as you know it will be banned. Instead your adviser will have to confirm the amount they will charge for the advice you receive and you will have to sign off on this to confirm you are happy to pay it. However you will not have to write out a cheque necessarily. The adviser can still be paid by the product provider just like they are now. The key change is that it will all be agreed with you and be very transparent.
This is a fantastic change that will bring clarity to the situation when seeking financial advice.