The Retail Distribution Review and the end of fund commission

If you have ever asked a financial adviser for help and been handed a fee quote instead of a product recommendation, the Retail Distribution Review is why. The review was set up by the Financial Services Authority, the regulator later replaced by the Financial Conduct Authority, and it aimed to improve the structure and professionalism of independent financial advisers¹. Its best known effect was to ban the payment of commissions to independent financial advisers and accountants².

Before the change, an adviser could be paid by the fund manager or insurer whose product you bought. That payment came out of your investment, and it created an obvious conflict: the product that paid the most was not always the product that suited you. The review's answer was to make the adviser charge you directly, so the cost of advice is visible and separate from the cost of the product.

The Financial Services Consumer Panel considers that the Retail Distribution Review has made significant improvements to the investment advice market³. The legacy is still visible in every fee agreement you sign, every "independent or restricted" question you are asked, and the qualification every adviser must now hold.

What the Retail Distribution Review changed for investors

The single biggest change was the end of commission. Advisers are no longer paid by commission⁵, and they are not allowed to accept it⁶. Instead, they must charge you directly for their advice, so that the payment cannot influence which product they recommend⁶.

That shift matters because it separates two costs that used to be tangled together: what you pay for advice, and what you pay for the product. Under the old model, a fund with a higher annual charge could quietly fund a bigger commission. Under the current rules, the adviser's fee is agreed with you, and the product's own charges are disclosed separately.

The review also raised the professional bar. There are minimum qualifications that all regulated financial advisers need to achieve⁸, and the standard is now QCF Level 4⁴. Advisers must also be registered with the FCA⁹. The effect is that advice is delivered by someone who has met a defined entry standard rather than by anyone who can pass a sales exam.

The review did not solve everything. Currently 70% of consumers do not seek investment advice from an adviser⁶, and the concern about a gap between those who get advice and those who do not has not gone away. The Financial Services Consumer Panel's verdict is that the review made significant improvements to the investment advice market³, which is a measured endorsement rather than a claim that the market now works for everyone.

Advisers charge you directly, not through commission

Under the current rules, an adviser must agree with you up front how much you will be charged for their services, when you will be charged and how payments will be made to them⁷. That agreement applies to both independent financial advisers and restricted financial advisers⁷.

The charging method itself is a choice, and the method you are offered shapes what the advice costs you over time. Common approaches include an hourly rate, a set fee according to the work involved, a monthly retainer, or a percentage of the money invested⁵. Frequently, advisers charge a percentage of the assets they advise on, which could be one or two per cent⁶.

Those methods behave very differently. An hourly rate or a fixed fee is a one-off cost that does not grow with your pot. A percentage charge does the opposite: it rises as your investments grow, so the charge grows with the portfolio, every year. A monthly retainer sits in between, spreading the cost but continuing for as long as the relationship lasts.

The regulator does not set the price. What it requires is transparency and a fee agreement before work begins⁷. Costs vary widely with the adviser and the type of advice: one independent guide puts the cost of financial advice at £500 to £5,000 or more⁶. Equity release advice is quoted separately, at between £700 and £1,900, with the note that some advisers receive commission from lenders instead of charging customers¹⁰. That last point is a reminder that the commission ban applies to investment advice, not to every corner of the market.

Independent, restricted or simplified: what each one means

The review created a clear split between two kinds of adviser, and you are entitled to know which one you are dealing with. An adviser must tell you whether the advice is independent or restricted, the level of advice you will receive, and how much you will have to pay for it⁵.

An independent adviser can consider the whole market. A restricted adviser gives advice on a limited range of products⁵, and may only recommend a limited range of investments, or investments from just one provider⁶. Restricted advice is not automatically worse for you, but it is narrower, and the restriction should be explained before you commit.

Simplified advice is a newer development rather than part of the original review. It is described as individualised advice but focused on a single, straightforward consumer need, without requiring a full assessment of your circumstances and delivered at a relatively low cost¹³. It suits a narrow question, such as whether to top up a pension, and not a full financial plan.

If you want to understand how these models compare with doing it yourself, execution-only, advisory and discretionary services compared sets the three side by side, and independent vs restricted financial advisers goes deeper on the split the review created.

Adviser qualifications: the minimum standard advisers must hold

Every regulated financial adviser must now meet a minimum qualification. All financial advisers must have Level 4 or above of the national Qualifications and Credit Framework⁵, which is the equivalent of the first year of an undergraduate degree⁴. Advisers must also be registered with the FCA⁹.

The qualification is not the end of the requirement. Advisers holding a Statement of Professional Standing must have signed up to a code of ethics and completed at least 35 hours of professional training each year⁵. Some advisers also hold the ISO 22222 certificate, which requires them to re-certify annually and undergo a three-year cycle of reviews regarding different aspects of their business⁴.

For a consumer, the practical check is simple. Before you engage an adviser, ask what qualification they hold and confirm their registration on the FCA Register. If an adviser cannot tell you their status and their qualification, that is information you need before any money changes hands.

Why the rules were brought in

The review was a response to a market that was not working well for consumers. Currently 70% of consumers do not seek investment advice from an adviser⁶, and the commission model meant that those who did could not easily tell whether the recommendation was driven by their needs or by the payment the adviser would receive.

The Financial Services Authority set the review up to improve the structure and professionalism of independent financial advisers¹. The two levers were payment and competence: remove the commission that skewed recommendations, and raise the qualification bar so that advice is a profession with an entry standard rather than a sales role.

The same thinking runs through later regulation. The Consumer Duty requires firms to act in good faith toward retail customers, avoid causing foreseeable harm to retail customers, and enable and support retail customers to pursue their financial objectives¹⁴. The Payment Systems Regulator has issued rules designed to encourage transparency, engagement and comparison to help promote competition in the card-acquiring market¹⁵. The pattern is consistent: make the cost visible, and make the firm accountable for the outcome.

The review's own record is mixed but positive on the measure that matters most to its authors. The Financial Services Consumer Panel considers that the Retail Distribution Review has made significant improvements to the investment advice market³. The remaining question, of how to serve the majority who still do not take advice, is the one the review did not answer.

Where the rules do not reach

The commission ban applies to investment advice. It does not cover every financial product, and the exceptions matter if you are shopping outside investments.

Equity release is the clearest example. Advice on equity release can cost between £700 and £1,900, and some advisers receive commission from lenders instead of charging customers¹⁰. A separate source puts the arrangement fee for equity release in the region of £1,000, again noting that some advisers receive commission from lenders instead of charging customers¹¹. If you are considering equity release, the payment route is worth asking about directly.

Debt advice sits under a different regime entirely, and much of it is free. Approved money advisers working for Citizens Advice, independent advice centres and local councils will not charge you for debt advice¹¹, and there are free advice services that can help¹².

Mortgage advice, insurance and other areas have their own rules. The review's legacy is concentrated in investments and pensions, which is where the commission problem was most acute and where the fee disclosure rules now bite.

What protects you now

The protections that came out of the review are mostly about information and agreement, and they are enforceable.

• A fee agreement before work starts. Both independent and restricted advisers must agree up front how much you will be charged, when you will be charged and how payments will be made to them⁷.
• Disclosure of status. An adviser must tell you whether the advice is independent or restricted, the level of advice you will receive, and how much you will have to pay⁵.
• A minimum qualification. All advisers must hold QCF Level 4 or above⁵, and be registered with the FCA⁹.
• Ongoing training. At least 35 hours of professional training each year for advisers holding a Statement of Professional Standing⁵.

Where the protection stops is at the price. The regulator does not cap what an adviser can charge, and it does not guarantee that the advice will be good. If advice turns out to have been unsuitable, the route is a complaint to the firm and then to the Financial Ombudsman Service, which can order redress. The ombudsman's approach to mis-sold pension and investment policies has been set out in detail in its published guidance¹⁶.

If you are weighing up whether to pay for advice at all, how much does a financial adviser cost? breaks down the charging methods, and does FSCS protect financial advice? explains what happens if a firm fails. For the wider picture on where advice sits among your options, investing: a complete guide is the starting point.