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How to transform your finances in 2013

Ed Bowsher
by Lovemoney Staff Ed Bowsher on 12 November 2012  |  Comments 7 comments

The way many financial advisers work is about to change. This is good news for consumers. It's an advice revolution!

How to transform your finances in 2013

Financial advisers have taken a lot of stick over the years. Much of the criticism has been deserved and I’ve been pretty negative myself in the past.

However, things are now changing for the better. New rules are about to come in which will mean that you can visit a financial adviser from January with much more confidence. And that means you could start to transform your finances in 2013.


The rule changes are a result of something called the Retail Distribution Review (RDR), but the name isn’t important. What matters are two big changes:

1. All advisers must have decent qualifications

From January, all advisers must have passed exams which are roughly equivalent to completing the first year of a university degree. In the jargon, this is known as ‘Level 4.’ This should mean that all advisers really know what they’re talking about.

2. Charges for financial advice are becoming much more transparent

Traditionally, the majority of financial advice clients have received ‘free’ advice.

In other words, they visited an adviser on a couple of occasions and the adviser would then normally recommend some products – perhaps a pension or a unit trust. If the client then bought one of those products, the adviser would receive commission from the product provider.

The trouble with this approach was that the customer didn’t really know what was going on. What’s more, there was a risk that an adviser might recommend a product because the provider paid a high commission.

As a result, some people have argued that financial advisers were more like salespeople rather than true advisers.

Going forward, some advisers may still offer free introductory consultations to potential clients. These meetings will be truly free with no strings.

However, at some point, the adviser will want to make some money and there are two ways he can do that.

Firstly, the adviser could charge an upfront fee which the client would pay regardless of what advice is given.

The second approach is the adviser taking a cut if an investment product or pension is sold. That might sound like commission but it isn’t really.

That’s because the adviser has to disclose a set fee at the beginning of the process, and he also has to say that the fee will be taken from any product that might be sold.

So the adviser won’t have any incentive to recommend the product that pays the highest commission. He’ll charge the same fee regardless of which product is recommended.

On top of that, advisers will no longer be able to receive ongoing commission from any new products they sell. So if you buy a pension product in January 2013, your adviser won’t still be receiving commission from the provider in 2015.

The real crux of the changes is that charging will become much more transparent. Along every step of the process, clients will know what’s going on and what they’re going to pay. That should help increase trust between the client and the customer.

You can read more about the new rules for charging in Bureaucrats get it right for once!

Types of adviser

There’s a third change coming as well. It’s less important than the first two, but still interesting.

Going forward, there are going to be two kinds of adviser:

Independent Financial Adviser and Restricted Adviser.

An independent advisor can advise you across the board on all your financial issues. He can also recommend any product from any provider, and must give completely unbiased and unrestricted advice.

A restricted adviser may not be allowed to give you advice on all financial issues. What’s more, he may be tied to a restricted range of product providers. Any restricted adviser should explain his status from the beginning. Restricted advisers are still expected to be professional and must have Level 4 qualifications.

What about bank advisers?

If you visit a bank and ask to see a financial adviser, you’ll end up seeing a restricted adviser.

It’s also possible you’ll be offered an ‘information-only’ service by a member of the sales staff. In that case, the salesperson would take you through the details of the product. But he wouldn’t find out about your financial situation and wouldn’t officially recommend a product that was right for you and your circumstances.

It’s always best to take advice from a genuine adviser. If you’re in doubt, ask if the person is a true financial adviser with ‘Level 4’ qualifications.

Poor advice

Don’t get me wrong. I’m not saying that all advisers will be perfect from January 2013 onwards. There is incompetence in every profession.

So if you think an adviser may be giving you bad advice, don’t ignore your doubts.

You should be especially nervous if the adviser is proposing a complex plan that you don’t fully understand. Simplicity is normally the best approach when it comes to money.

Also look at the charges you’ll be paying to the product provider. If you’re looking to start a pension or invest, it’s essential that you go for a product where the charges are low. Tell your adviser that low charges are a priority for you.

Risk is another important issue. Risk isn’t necessarily a bad thing, but remember that the older you get, the less risk you should take.

And don’t be afraid to read around – for instance on Lovemoney – and see if the advice makes sense. You could also visit another adviser for a second opinion.

Positive revolution

But overall, I’m confident that more advisers are going to be giving good advice in the years ahead. 2013 will be a great year to really make a difference to your finances.

Check out our video: Should you go to a financial adviser?

More on advice and investment:

Bureaucrats get it right for once!

How to find the best adviser

When should you get advice?

Ten questions you should ask a financial planner

Six great reasons to choose an index tracker

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Comments (7)

  • naflod2
    Love rating 3
    naflod2 said

    The problem that I can see is that it has given no consideration to those that merely use IFAs on an execution only basis without any advice being given.

    Up to now discount brokers have split commission for exuction only service. Eight weeks time it will be gone, with an adverse effect on those capable of making their own decisions, who have always been penalised in the past by the system which only pays commission to FAs and not individuals,

    Report on 12 November 2012  |  Love thisLove  0 loves
  • russbiker
    Love rating 70
    russbiker said

    I received a letter from BestInvest at the weekend stating that any future investments I take out with them will be subject to a platform fee, which I didn't have to pay previously.

    As no advisor is involved, how is this a gain to me as the consumer?

    Report on 12 November 2012  |  Love thisLove  0 loves
  • nickpike
    Love rating 308
    nickpike said

    If I want advice, surely I'd go to an accountant or someone who is qualified. These 'advisers' are sales personnel. I seem to remember their commission was the first years payments. If a customer finds that out, surely it would put them off. I found out that if I took a bank product through the bank's adviser, they would take the equivalent of the first years profits, making the deal more or less pointless. There's plenty of sales people out there, ready to skim money from you based on the weakness of 'peace of mind'. I seem to have done alright without the use of any 'advisers'.

    Report on 12 November 2012  |  Love thisLove  1 love
  • MK22
    Love rating 169
    MK22 said

    I have known about this for some time, but despite discussions with various (alleged) financial experts I am still struggling to see the advantage to the consumer. The change that was really needed was regulation so that where bad/wrong advice was given, compensation followed. Sadly I'm not aware that has been introduced. As far as I can see, the fees structure will enable the IFA to gain the same income as before when they talk to you and subsequently do something and they will charge when they talk to you but don't do anything. Tell me again how this advantages the consumer.

    Report on 12 November 2012  |  Love thisLove  0 loves
  • mollosrabbit
    Love rating 0
    mollosrabbit said

    The advantage of the previous system was that advice was obtainable and you could cross check with a number of IFAs. Now to do that, you will need to pay a fee to each.

    It is naive to think that most members of the public will be willing to pay the cost for good advice up front.

    The net result of this is that the IFA market will collapse and advice will not be available to "ordinary" people.

    The cynic in me tells me that this is exactly what the FSA want because that will mean there are less firms to regulate.


    I am not an IFA, and I consider myself sufficiently informed to have never needed independant financial advice.

    Report on 13 November 2012  |  Love thisLove  0 loves
  • Ed Bowsher
    Love rating 80
    Ed Bowsher said

    Interesting comments. Thank you everyone. I'll try and answer a few.

    - I don't think the Financial advice industry will collapse. It may contract, but I don't believe it will die completely.

    - Not all advisers will charge upfront fees from the beginning. Some may, but not all.

    - Yes, it'll be harder to get 'free' advice. You may not want to speak to three different advisers before making a decision, but you should be able to place greater trust in whatever advice you do receive.

    - the RDR isn't just about charging. It's also about better training and qualifications for advisers. A change in culture.

    - yes, many advisers have been salespeople in the past, but that's what the RDR has been designed to change.

    Re discount brokers: yes, execution only customers may miss out on juicy refunds of some charges. It's possible that this won't prove to be a problem as fund management companies may reduce their charges as a response to the new world. But I can't guarantee that.

    More rules will probably emerge on platforms/discount brokers in what some people call 'RDR 2". I don't know for sure how this will pan out.


    Report on 14 November 2012  |  Love thisLove  0 loves
  • wrbedzinski
    Love rating 0
    wrbedzinski said

    "financy collaps" impossible to form today differency capitaling!

    Report on 22 November 2012  |  Love thisLove  0 loves

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