As we prepare to leave for our Christmas break, we look forward to 2013 and all it will bring. One significant change that awaits us is the Retail Distribution Review (RDR), a piece of legislation from the Financial Services Authority (FSA) that aims to improve standards and remove conflicts of interest in the investment management and financial advice industries. The new rules come into force on 1st January.
At Wise we advise our clients on their personal financial situation, and also manage their investments in individual accounts and in the TB Wise funds. The RDR covers both sides of what we do. We at Wise support the broad aims of the RDR. We have taken steps to ensure that we comply with the legislation and can therefore continue to service our clients with the minimum of upheaval. Below I'll outline what it means for our clients and for investors in the funds.
There are two strands to the RDR. The first has the target of improving professionalism within the financial advice community. One aspect of this is that advisers must now be qualified to a higher level than was previously required - QCA level four is now the minimum. All of our advisers are qualified to this level or higher.
The second strand is to do with the way that advisers are paid. Traditionally the adviser would receive commission from the financial products that they recommended. For example, if recommending an investment in a fund, the fund would pay the adviser a proportion of the sum invested up front (typically up to 3%), and an ongoing commission known as 'trail' (typically 0.5% per annum). This has been identified by the FSA as providing an environment where conflicts of interest could abound. Products that paid a higher commission were more likely to be recommended, even though they might not be the best ones for the client. The RDR bans the payment of commission from most investment products, meaning that advisers must charge their clients directly.
Wise has offered our clients a service by which we are paid directly for a number of years now. We predominantly use the custodian Pershing to hold our clients' assets and facilitate payment of charges, and we agree the charge to be made with our clients in advance. We believe that our service not only complies with regulation, but also improves our ability to manage our clients' investment portfolios.
Our advisers have made a concerted effort over the past two years to move our advisory clients on to a compliant system. Those that already have Pershing accounts will see no further changes. Depending on individual circumstance, clients using other products or services may have to change their portfolios to ensure that we abide by the rules. Your adviser will be happy to discuss this with you.
Discretionary investment management
Clients that use our discretionary investment management service (administered by Pershing) will see no changes, as this already complies with the RDR.
TB Wise Funds
In order that investors can purchase the TB Wise funds without the complication of soon-to-be defunct commissions, we provide a class of shares that is totally commission-free, the 'B' class. The 'B' shares are available to all investors directly, and through many platforms. There is no initial charge on these shares, and the investment management charge is 0.75% per annum.
If you are a holder of the 'A' class of shares, you are welcome to convert to 'B' shares. Please contact the dealing desk at T Bailey on 0115 988 8258 for more information, or speak to your adviser.
Wise already offers services that comply with the new regulations, and we hope that most clients will not feel any impact after the 'switch on' date of 1st January. For those clients that will be affected, we will work with you to ensure that any disruption is kept to a minimum. We think that our service in the new regime means that we will be able to effectively advise our clients and manage their investments for many years to come.
Wishing you a merry Christmas and happy New Year
Ben Peters, December 2012