CISI – Financial Products, Markets & Services - PowerPoint Presentation

1. CISI – Financial Products, Markets & ServicesTopic – 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 RDRCustomerAdvisorProvider of the productGoes to an advisor for help with finding the best financial products for themProvides “free” advice to customers, although may favour products with higher commission from particular providersOrganise the provision of the product for the customer with the providerPays commission to the advisor: Initial % for selling their product A “trail’ commission for encouraging customers to keep the productAdvisorGoes to an advisor for help with finding the best financial products for themCharges the customer for their advice up front: % of assets Fixed feeOrganise the provision of the product for the customer with the providerCustomerProvider of the productPost RDR – Transparent charges - Customer focused:Before RDR – Hidden charges - Provider focused:

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

5. Execution-only Services 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. What are they? They are predominantly telephone or internet-basedThey can buy and sell a number of things, including: Stocks and shares Funds Unit trusts Open-ended investment companies (OeWhat can an investor buy?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-Advicehttps://www.youtube.com/watch?v=5iXM4yOtfU4What is Robo-Advice?How does this differ from traditional financial advice?http://www.bestroboadvisors.org/what-are-robo-advisors/

8. Robo-AdviceRobo-advice uses technology in providing financial advice but without the need for a human financial adviser.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.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.