The Retail Distribution Review
New regulatory rules come into force on 31 December 2012 following the FSA’s Retail Distribution Review (RDR) (now the Financial Conduct Authority (FCA)). The key objectives of the RDR are to:
- improve the clarity with which firms describe their services to consumers
- address the potential for adviser remuneration to distort consumer outcomes, and
- increase the professional standards of advisers
The new rules require advisers to move from receiving commissions to fees agreed with customers in respect of all Retail Investment Products as defined by the FCA which are:
- a life policy; or
- a unit; or
- a stakeholder pension scheme; or
- a personal pension scheme; or
- an interest in an investment trust savings scheme; or
- a security in an investment trust; or
- any other designated investment which offers exposure to underlying financial assets, in a packaged form which modifies that exposure when compared with a direct holding in the financial asset; or
- a structured capital-at-risk product;
whether or not any of a to h are held within an ISA or CTF.
Retail Investment Products (RIPs) do not include protection-only insurance or charges for trading in securities.
Not all RIPs as defined by the FCA are exempt financial products for VAT purposes; whether or not a financial product or component of a wrapper is subject to VAT is determined by VAT legislation
The new rules apply to all product distributors and providers across the retail investment market involved in advised-sales. They also apply to advised-sales via platforms. These rules do not apply to investment management under a discretionary mandate or to execution only transactions, which are covered in other sections of VAT guidance (see VATFIN7530 and VATFIN5800).