Lowering the Costs of Investing:
Are the Europeans onto something?
About a year ago the Financial Conduct Authority, who is charged with regulating the financial services industry in the UK , issued their final guidance for what they called “Retail Distribution Review (RDR)” rules for investment advice. The 16-page document set out a number of significant changes, to take effect as of January 1, 2013, including:
- Firms providing advice are either “independent” or “restricted”.
- “Independent” advice to be genuinely free from bias that would limit the range of solutions offered to their clients.
- “Restricted” advice being that which is not independent.
- A ban on “inducements” or what we would call commissions.
This approach in the UK is also paralleled in Australia and the Netherlands, where rules have been passed to ban commissions in favor of charging a fully disclosed fee on investment advising. An excellent blog post by Jason Zweig of the Wall Street Journal, gives a very good summary of these rules and their anticipated effect. One bank director, a Pim Mol of Rabobank (in the Netherlands) estimated total investing costs for clients will decline under the new rules by 25% to 75%.
Here in the U.S., we can learn from the steps being taken in Europe. It is really important for an investor to know if advice is truly independent including whether their “advisor” is receiving a payment from someone else that might bias that advice. If it was not for the major lobbying power of the big Wall Street financial firms, our government would have already done the right thing to protect investors.
For more information visit www.paynewealthpartners.com. On our website you should be able to find answers to most questions you might have, and we are always happy to meet and discuss anyone’s situation.
Authored by: T. Taylor Payne CPA, PFS, CFP(r) (Bio)
Direct Phone: 812-602-6301