With an implementation date of 31 December 2012, time is running out for investment advisers, product providers and investment managers doing business in the UK retail investment market to have systems and structures in place to meet the rules put in place following the FSA retail distribution review (the RDR rules).

The RDR rules are seen as a key part of the FSA’s consumer protection strategy and apply to all personal recommendations made by adviser firms, including those made by discretionary investment managers.

Key aspects of RDR

  • Improving clarity for consumers about advice services – investment firms will be required to clearly describe their services as either "independent advice" (independent advice is truly independent and reflects investors’ needs) or "restricted advice" (where advice is given only on a limited range of products).
  • Addressing the potential for remuneration bias – Commission bias will be brought to an end through a ban on product provider commission being paid to advisers, which will prevent advisers automatically recommending products that pay commission. In addition, firms giving investment advice will be required to agree charges with their clients and meet new standards on how these charges are determined.
  • Increasing professional standards of advisers – the minimum level of qualification for investment advisers will be raised to a new, higher level, regarded as the equivalent to the first year of a university degree. A professional standards board will maintain and enforce an overarching code of ethics and enhanced standards for continuing professional development.

The RDR rules will impact on all regulated firms involved in producing or distributing retail investment products and services and include, independent financial advisers (IFAs), wealth managers, fund managers, multi-tied advisers, tied advisers, private bankers and stockbrokers. The rules will not apply to general insurance and mortgage products and services.

New definition of Retail Investment Products

The RDR rules apply to a wide range of retail investment products, and have been further extended following the introduction of a new FSA definition to include, inter alia, packaged products, unregulated collective investment schemes and all investment in investment trusts (not just those in investment trust savings). The extended definition appears to include the vast majority of investment products. Indeed, the FSA has indicated that where firms are in doubt they should assume that the RDR rules apply.


Although the UK is the first European country to introduce a regulatory solution for consumer protection in the form of RDR rules, European legislative proposals, in particular MiFID II (which is still subject to negotiation) indicate that it is only a matter of time before all member states will be required to impose similar requirements.

Creation of RDR Share Classes

To ensure compliance with the RDR rules, fund managers and promoters have amended existing share classes or are creating new share classes so they will be able to offer investors “RDR ready” share classes. Conversion of existing shares classes has involved:

  • Stripping out any adviser and platform charges so that investors pay a reduced management fee (either with or without a performance related fee).
  • Reduction of the minimum investment for an institutional share class (such share classes typically charge a lower management fee compared to that charged by retail share classes).