By Martin Bamford, Managing Director at Informed Choice

You might have heard about some major changes being introduced for financial advisers over the next few years. These are changes being implemented as part of the Retail Distribution Review (RDR) initiative from the Financial Services Authority. To date, whilst there has been plenty of discussion and debate about these changes within the retail financial services sector, very little has been publicised about what the changes mean for consumers of financial products or services.

The proposals aim to increase the level of professionalism in the sector and generally raise standards, both outcomes which will hopefully benefit consumers. The main areas for change are remuneration, qualifications and scope of advice.

In the past, financial advisers have typically been remunerated through the payment of commission when they sell a financial product. This commission is funded through product charges, which you pay when you invest money or pay premiums, and must always be disclosed before a product is sold. In many cases, this commission was ‘factored’ by the product provider, so the financial adviser would receive a larger amount of the commission up front.

The new proposals mean that this product provider factoring will be abolished at the end of 2012 and advisers will be remunerated through a system called Adviser Charging. This means that your financial adviser will need to agree, in advance of doing any work for you, how much they will charge you for their services. The new remuneration system should help improve impartiality as it will remove product providers from decisions about how much an adviser is paid, placing this responsibility on an agreement between the adviser and their client.

Another big change coming into force from the end of 2012 is qualification standards. The current rules mean that financial advisers need to hold a qualification at QCF Level 3, which is broadly equivalent to a GCSE level qualification. With the world of financial advice becoming increasingly complex, the new requirements will mean advisers need to be qualified to QCF Level 4, which is Diploma standard.

From the start of 2013, advisers will need to offer either independent or restricted advice. Those offering the latter will be required to explicitly disclose the limitations of their services and product range. It is likely that some advisers currently offering independent financial advice will revert to restricted advice under the new regime, so you will need to check carefully what is on offer from your existing adviser.

It is important to be aware of these proposed changes and start to measure your existing adviser against the new standards. Look at the way in which they are currently remunerated for providing their services, their current level of professional qualifications, the scope of advice they offer and any existing membership of a professional body, where they are signed up to a code of ethics.

Have the conversation today with your existing adviser and understand how they plan to operate under the proposed new rules.