1. CISI – Financial Products, Markets & Services
Topic – The Financial Services Industry
(1.1.3) Investment Distribution Channels

2. RDR – What is it? What was the impact?
The Retail Distribution Review (RDR) came into effect in January 2013.
It changed the way that customers are charged for financial advice given by Independent Financial Advisers (IFAs):
Abolished the use of commission paid to advisers by product providers
IFAs have to charge an up-front, transparent fee to customers
Greater emphasis on professional qualifications required to be an IFA
Promotes a customer focused rather than provider focused culture
Customers can now ‘shop around’ for financial advice
Promotes a longer-term relationship between IFAs and customers

3. Before and After RDR Before RDR – Hidden charges - Provider focused:
Goes to an advisor for help with finding the best financial products for them
Organise the provision of the product for the customer with the provider
Customer
Provider of the product
Advisor
Provides “free” advice to customers, although may favour products with higher commission from particular providers
Pays commission to the advisor:
Initial % for selling their product
A “trail’ commission for encouraging customers to keep the product
Post RDR – Transparent charges - Customer focused:
Goes to an advisor for help with finding the best financial products for them
Advisor
Organise the provision of the product for the customer with the provider
Provider of the product
Customer
Charges the customer for their advice up front:
% of assets
Fixed fee

4. After RDR Independent advice Restricted advice
Investment firms must now clearly describe their services as either independent advice or restricted advice.
‘Whole of market’ advisors
Recommendations to customers based on comprehensive and fair analysis of all products available in the market
Provide unbiased, unrestricted advice
Independent advice
Only recommend from a narrower range of products
Restricted advice
Often only give advice on its own range of products
They have to make it clear to customers that they only offer restricted advice
Their activities are supervised by the Financial Conduct Authority (FCA)

5. Execution-only Services
What are they?
This is when no advice is given by a firm.
The customer asks a firm to buy or sell a specific named investment product without having been prompted or advised by the firm
The customer is responsible for their own decision about a product’s suitability.
They are predominantly telephone or internet-based
What can an investor buy?
They can buy and sell a number of things, including:
Stocks and shares
Funds
Unit trusts
Open-ended investment companies (Oe
To ensure that firms operate within regulatory guidelines they need to record and retain evidence in writing that the firm:
Gave no advice; and made it clear, at the time of the sale, that it was not responsible for the product’s suitability.

6. Who offers execution-only services?

7. Robo-Advice What is Robo-Advice?
How does this differ from traditional financial advice?

8. Robo-Advice
Robo-advice uses technology in providing financial advice but without the need for a human financial adviser.
An investor enters data about themselves into a system which uses algorithms to score the information and decide which investments are most suitable.
The system creates and presents an investment strategy, which is usually passively focused around index funds or exchange-traded funds (ETFs), and allows easy implementation.
Robo-advice is already established in the US, with some of the industry’s largest players involved. It is expected to appear shortly in the UK to fill the gaps in the advice market.