Top 3 Key Changes That Relate To Financial Advisors In 2013

By: Gustavo Mcgee


At this point, most people are often confused regarding the real costs of the financial advisors' fees as well as whether or not they could trust these professionals for their unbiased services. However, the good news is that effectively of 31st of December 2012, all that is going to change as the new legislation will oblige the financial advisors to divulge their costs, fees and commissions to the very last detail. In addition, these professionals will also have to inform their clients whether the services they offer are independent or restricted.

It is important to note that the key changes in the financial advisor legislation niche presented in this article do not refer to general insurance, protection products, saving products or mortgages, unless of course they are handled as regulated investment products. Therefore, if you will be relying on the advice of these professionals for the regulated retail investment products in the near future, here is what you need to know.

1. The ongoing commissions are outlawed for new products

For the time being, it is very possible that your advisor receives an ongoing commission from a company simply because you are using a certain financial product. Because the commissions are paid from your investment fund, the advisor's earning can result in quite an impressive sum if you are currently spending cash on a long term product. Even though in 2013 they will not be able to do that for the new products, financial advisors will still receive the commission for the ones they have already sold.

2. They will need to setup a clear fee system

Currently, a financial advisor can either charge:

An up-front fee
A commission, if they promote certain financial products
A mixture of the two

Because the commission system will be outlawed in 2013, these professionals will have to create individual fee systems based on the type of services they provide. Obviously, the client is informed about the fees beforehand and he has to agree with them before he can benefit from the services. The positive outcome of this change is that customers will be sure to get unbiased advice. The negative consequence predicted is that some advisors will most likely start offering information-only services with applicable hidden fees.

3. Types of advice

Presently, it's hard to tell whether you are dealing with an independent or restricted advisor. However, all that will change soon as the legislation mandates to clearly specify whether the advisors are tied, multi-tied or independent. If an agent is restricted then he needs to specify his limitation clearly to his clients. In regards to the independent advisors (IFAs), they can only attain this status after undergoing a thorough FSA examination.

On a side note, for now, in order to offer financial advice these professionals need to have a qualification of at least a Level 3 or Credit Framework Qualifications. In 2013, all financial advisors will need to obtain an annual Statement of Professional Standing (proof they adhere to an ethical professional code) and have a Level 4 qualification (the equivalent of first year of college) in order to provide services.

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