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5 Ways New U.K. Rules Can Affect Your Business

5 Ways New U.K. Regulations Can Affect Your Business 5 Ways New U.K. Regulations Can Affect Your Business

Starting Dec. 31, U.K. advisors will be required to make changes in their practice based on new regulations. These rules, which deal with the advice given and the way advisors charge, have not been implemented in the U.S. yet, but leading advisors should consider applying the changes to their own businesses.


Here are 5 key components of the new regulations that U.K advisors will have to adopt come December.

Source: Deena Katz, columnist, Financial Planning Magazine

1. Ban of Commissions 1. Ban of Commissions

Financial advisors typically earn their income by charging a fee or getting commission from company products that they sell. In the U.K. next year, perhaps the most dramatic change that comes is the ban of commissions for advised retail investments. Advisors must also disclose and charge clients separately for advice.

For clients, this means a step closer towards receiving unbiased advice.

For advisors, it will mean segmenting your client base and pruning it for unprofitable relationships.

2. Independent or Not? 2. Independent or Not?

In an attempt to clarify the advice being provided to clients, advisors must identify their services as being in one of three categories: independent, restricted, or simplified.

Independent: Advisors must have access to any and all financial products or solutions that would be suitable for their client base.

Restricted: Services that offer access only to a limited range of products that must be clarified.

Simplified: Services that include low-complexity products and very limited advice for people with simple needs.

This pushes and helps advisors to develop an optimum client description while focusing marketing efforts on those prospects.

3. Tax for “Advice-only” Service 3. Tax for “Advice-only” Service

Firms that provide advice alone will need to charge value-added tax (currently 20%) to clients, while those who implement, review, and monitor a client’s assets will not have to charge this tax. This gives a natural incentive for advisors to do their job better.

4. Higher Education 4. Higher Education

U.K. advisors must also have a higher-education diploma and complete 35 hours of continuing education annually. (That’s more than double the current requirement in the U.S.) Advisors must also obtain an annual statement of professional standing from an accredit body, certifying that they meet the new requirements.

5. Increased Capital Requirement 5. Increased Capital Requirement

The new rule will include a phased-in capital requirement equal to 25% of a firm’s annual operating expenses, with full implementation due by December 2015. This is in line with a broader risk-adverse climate in the global financial system that provides clients’ capital a greater degree of protection from volatile investments.

6. The Verdict? 6. The Verdict?

Most of these changes would actually be good business practices for today, independent of the way you get paid. These strategic decisions will help you create value for your clients, demonstrate your professionalism, and improve your bottom line. It will prompt advisors to no longer remain sales-driven, but rather, solution-driven.

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Starting Dec. 31, U.K. advisors will be required to make changes in their practice based on new regulations. These rules, which deal with the advice given and the way advisors charge, have not been implemented in the U.S. yet, but leading advisors should consider applying the changes to their own businesses.

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