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Financial services review good news for investors; Finding reliable professional advice is more important than ever when trying to work out how to manage your money. Richard Clark, pictured, takes a look at new moves to improve standards.

IT goes without saying that investment markets have been extremely volatile over the last two years and people who have seen the value of their savings and investments fall dramatically, would be forgiven for losing faith in the markets, and possibly their advisers too.

Alongside this a number of long running problems have impacted on the quality of financial advice and consumer outcomes to retail investors.

The financial services industry regulator, the Financial Services Authority (FSA), has undertaken a review which will hopefully lead to improvements in industry standards with increased clarity of service for clients, financial adviser remuneration and increased professional standards and qualifications for advisers.

The wealth management department at Dickinson Dees LLP welcomes the changes proposed by the Retail Distribution Review (RDR) which will hopefully lead to vast improvements in the standards within the financial services industry as a whole.

The Retail Distribution Review (RDR) and clarity of service to clients.

When appointing a financial adviser, there are currently three main service categories available to retail investors, tied, multi-tied and independent.

Tied and multi-tied, as their names suggest, refer to an adviser who is either restricted to advising and recommending products from a single provider (tied) or perhaps several providers (multi-tied). There are obviously limitations associated with receiving advice from either a tied or multi-tied adviser which may or may not be an issue depending on the type of advice required and the individual's own circumstances. In contrast, independent advisers are able to recommend products from the whole of the marketplace.

For example if you require protection advice, the policy which best suits your needs may be available through the tied or multi-tied adviser. However, it may be that the tied or multi-tied adviser recommends the product that is the closest match to your needs from the products he is able to.

Don't forget that there may be a policy available from another provider that would be more appropriate for you.

Following implementation of the changes proposed by the RDR it should become easier for investors to distinguish between the different forms of advice on offer to them.

The Retail Distribution Review (RDR) and adviser remuneration There are currently two main options in terms of adviser remuneration: commission-based or fee-based, although it is possible to combine the two in some instances.

Currently, an independent adviser must offer you an option to pay for any services by way of a fee rather than based on the commissions received.

For the most part, this is preferable as agreeing a fixed fee ensures the adviser is not influenced by any commissions that may be generated.

The Retail Distribution Review (RDR) and professional standards and qualifications Under current requirements, all regulated advisers must refresh their knowledge regularly to ensure that they give the best possible advice to investors.

The current entry level in terms of qualifications for individuals wishing to provide financial advice is the equivalent to the Personal Finance Society's Certificate in Financial Planning (CFP).

Under RDR the minimum benchmark for the qualifications that advisers must obtain will be increased.

It is believed that this benchmark will be equivalent to the current Diploma in Financial Planning achieved through the Personal Finance Society. This should not only improve the standard of advice within the industry, but also hopefully increase consumer confidence. Alongside this, the FSA is consulting on the creation of an independent Professional Standards Board to set and implement higher and consistent standards for the financial services industry in the areas of qualifications, ethics and continuous professional development.

We are confident that any impact caused by RDR to our current business will be minimal. The quality of advice offered to our clients, in addition to their experience of working with us as a whole, is extremely important to us. Before our advisers are allowed to provide advice to clients, they must achieve the Diploma in Financial Planning, awarded by the Personal Finance Society. Our clients also benefit from an independent fee-based service, which allows us to recommend products from the whole of the market in order to provide rounded advice.

Richard Clark is a financial adviser at Newcastle law firm Dickinson Dees. Contact him on (0191) 279-9265 or at Q&A Your money queries are answered by Peter Rutherford, senior director of Rutherford Wilkinson Ltd, Chartered Financial Planners.

QI am considering transferring my cash ISA to another provider as the interest rate is not very attractive. However, I have noticed that if I make withdrawals from it I will lose six months interest on that amount. Will this apply when I transfe r? AThis would depend upon the small print. You should read that or check with the provider but if still in doubt assume that the penalty will apply. It may not be such a great loss if the interest rate is very low and the six month penalty could be made up very quickly if the difference in the rate is substantial enough.

QI read an article a few weeks back about stock market investing. One of the people interviewed described the stock market as a "zero sum game". Could you explain that? AThe comment almost certainly came from a passive investment company. What is meant is that the total stock market return is a figure that is made up by some people outperforming and other people underperforming. You cannot have more outperformance than underperformance as they have to match the total stock market return. Therefore the claims from many active investment companies that they can consistently outperform the stock market are built on sand.

The total stock market return does not take into account any costs, which inevitably there are. Active fund management costs are generally considerably higher than passive fund management. This makes it extremely difficult if not impossible for most active fund managers to outperform. Here at Rutherford Wilkinson, we have made the decision to use passive funds wherever possible but we also apply academic research to maximise returns.

QWe have recently become grandparents and wish to invest some money for our grandchild. We want to ensure that he will receive it when he is old enough to appreciate it and if his parents divorce that the money stays in our bloodline. What is the best way to achieve this? AI recommend that you consider setting up a trust for your grandchild and you could include other grandchildren yet to be born as potential beneficiaries. You could then lodge a letter of wishes with the trustees to state that you did not want your grandchildren to have the money before, say, age 25. The next question is then "who should be the trustees?" You could be and you could also appoint your own child and/or spouse to be another trustee if you wished. In the event of a divorce the money within the trust is separate from matrimonial assets and would be protected. To request a free "Investor's Guide" or ask a question please contact me at Rutherford Wilkinson Ltd, Northumbria House, 21/23 Brenkley Way, Blezard Business Park, Newcastle upon Tyne, NE13 6DS. Website Telephone (0191) 217-3340 or email Rutherford Wilkinson Ltd is authorised and regulated by the Financial Services Authority.
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Copyright 2009 Gale, Cengage Learning. All rights reserved.

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Title Annotation:Sport
Publication:The Journal (Newcastle, England)
Date:Nov 28, 2009
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