The FSA’s Retail Distribution Review (RDR) will come into effect on 31 December 2012.

The FSA has adopted changes to the COBS sourcebook relating to the distribution of investment and personal pension products to retail investors in the UK. The most significant reform introduced by the RDR is the ban on commission paid by product providers to advisers in exchange for distributing their financial products. Post RDR, retail financial advisers will need to put in place a charging structure which is agreed to by the retail client. The FSA has provided guidance on “facilitation” structures. In broad terms, it should be permissible for an adviser to obtain its fee by deduction from the amount the client subscribes into the product, but it will not be possible for advisers to fund their fees from cash rebates of management fee paid by the manager to the client.

Timing and recommended actions: These rules apply to any investment manager or fund paying commission to FSA authorised advisers of UK retail clients, and come into effect on 31 December 2012. Many firms have created “RDR ready” share classes, which typically carry a management fee at half the rate of the existing management fee. Firms should check the terms of their distribution agreements with retail financial advisers to ensure adviser’s compliance with the RDR