What is adviser charging, and what did the RDR change?
Adviser charging is the system, in force since 31 December 2012 under the FCA’s Retail Distribution Review (RDR), in which investment advice is paid for by the client under the firm’s own published charges, not by provider commission.
The FCA’s 2020 evaluation of the RDR found an average initial charge of 2.4% and an average ongoing charge of 0.8% a year.
What the RDR changed
- No more commission on investment advice. Providers may no longer pay advisers for recommending their retail investment products. The client pays an adviser charge instead.
- Published charging structures. Firms must disclose how they charge before advising.
- Independent and restricted labels. See independent vs restricted.
- Higher minimum qualifications for advisers, and an annual Statement of Professional Standing.
What it did not change
The RDR covers retail investment products, including pensions. It does not cover mortgage or most insurance advice, where commission from the lender or insurer is still common and must be disclosed. A firm advising you on both may therefore be paid in two different ways.
It also did not set prices. The FCA's 2020 evaluation found charges clustered at a few round numbers and recorded that some consumers found advice unaffordable, which led to later work on cheaper forms of help, including targeted support.
Related definitions
Sources
- FCA, Evaluation of the impact of the RDR and FAMR (December 2020)
- FCA Handbook, COBS 6.1A — Adviser charging and remuneration
- FCA Handbook, COBS 6.2B — Describing advice services (independent and restricted)
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