3.20 Perform RDR Parameter Maintenance

This topic provides the systematic instructions to maintain RDR Parameters.

Maintain RDR Parameters

The Financial Services Authority (FSA) is an independent non-governmental regulatory body. FSA has proposed new regulations Retail Distribution Review (RDR) on Retail Advised portion of the Fund Market with effect from 1st January 2013.

The Retail Distribution Review regulations ban the payment of commission on retail advised retail business after 31st December 2012. Execution only Business can be defined as transactions by investor post-RDR without any advice from any advisor. While Advised Business can be defined as transactions done by investor post-RDR based on advice from advisor. Post-RDR, neither front-end nor trail commission can be paid on advised new retail business.

However, payment of commission (front-end/trail) can continue on New Business classified as Execution only Business. Commission payments can also continue to be paid on Legacy Business. Post RDR, the payment of commissions will depend on the classification of transactions (Legacy Business, Advised Business, and Execution only Business).

The RDR regulations will be applicable to UK domiciled advisor irrespective of whether they purchase UK funds or non-UK funds. The TAs for funds outside UK that are purchased as result of advice from a UK domiciled advisor will need to comply with RDR. It will be required to ascertain whether the advisor is domiciled in UK or not.

It is required to define the front-end commission and trail commission payable based on classification of transaction and domicile of advisor. It will be required to provide the audit trail for front-end commission and trail commission.

In the absence of commission payments on new advised business, investor will be required to pay fees to the advisor for the advice received. The advisor fee will be agreed upon by the investor and the advisor. The advisor will also be able to charge for ongoing services provided to investors. It will be required to provide audit trail for advisor fees. These fees are expected to be handled outside the system.

An investor may hold units in a fund and could have made investments based on advice received Pre-RDR and Post-RDR. The payment of commission or fees will depend on the classification of transactions. It will be required to segregate an investors holding (Pre-RDR/ Post-RDR) and classify them. Segregation of investor’s holdings will also be required to classify transactions resulting from reinvestment of dividends. It will be required to provide the audit trail for Pre-RDR and Post-RDR holdings.

Payment of commission on SI transactions will depend on whether the SI transaction is classified as Legacy Business, Advised Business or Execution only Business. The escalation in SI transactions will also need to be classified similarly.

Re-registration of an investment from one platform to another will not be by default classified as an advised event and trail commission can continued to be paid. In case the re-registration is based on advised activity, then trail commission cannot be paid. It will be required to capture whether re-registration is based on advice or not.

Post RDR, in case there is a change in agent, the reason for the same will determine the eligibility for payment of commission. In case the change of agent is due to agent’s decision like old agent selling his business, the new agent will inherit the terms of holdings and receive trail commission. If the change of agent is due decision by investor, no trial commission is payable to the new agent. Trail commission can be paid to the investor and reinvested.

At present, from the management fee charged by the AMC, a portion is paid to advisor as trail commission, portion paid to platform providers and the balance is retained for fund management. The RDR regulations ban payment of trail commission on new retail advised business. In order to comply with the regulations, the AMC may introduce a new fund class for all the existing funds with lower management fees. The AMC may also retain the existing funds and modify the fee structure. Post RDR, AMCs may reduce the management fees or retain the old structure and pay rebate to either or both platform providers and investors. In case platform providers are continued to be paid from the management fees, the same will required to be disclosed to the investors. In the future, the FSA would like to enforce all platforms to receive fees from investors for services provided.

The actual fee charging will be driven by business rules by mapping appropriate load ref type.

  1. On Home screen, type UTDRDRPM in the text box, and click Next.
    The RDR Parameter Maintenance screen is displayed.

    Figure 3-20 RDR Parameter Maintenance


    Description of Figure 3-20 follows
    Description of "Figure 3-20 RDR Parameter Maintenance"

  2. On RDR Parameter Maintenance screen, click New to enter the details.
    For more information on fields, refer to the field description table.

    Table 3-16 RDR Parameter Maintenance - Field Description

    Field Description
    RDR Applicable Optional
    Select if RDR is applicable or not from the adjoining drop-down list. Following are the options available:
    • Yes
    • No
    RDR Date Date Format; Optional

    Specify RDR date.
    RDR Warning Optional
    Select if RDR warning is applicable or not from the adjoining option list. Following are the options available:
    • Yes
    • No
    RDR Hierarchy Optional
    Select if RDR hierarchy is applicable or not from the adjoining option list. Following are the options available:
    • Yes
    • No
    Country Alphanumeric; 3 Characters; Optional

    Specify the country code. This adjoining option list displays all valid country code maintained in the system. You can choose the appropriate one.
    Country Name Display

    The system displays the name of the country for the selected country code.

    The system will determine the payment of commission by the classification of transactions, such as, IPO subscriptions, subscription, switch and transfer In, where transaction date is less than RDR Effective date and advisor is UK domiciled broker as Legacy/Direct Business.

    Post RDR for UK domiciled advisor, the system will track the transactions, such as, IPO subscriptions, subscription, switch transfer In and Trail Commission reinvestment as new business.

    Based on the value of Transaction Category field at the transaction level, the system will classify the transactions as either Legacy/Direct Business, Advised Business or Execution Only Business.

  3. Click Enrich Transaction button to default the Transaction Category field.
    For Non UK domiciled adviser, the system will default the Transaction Category to Legacy/Direct Business.
  4. If you change the Transaction Category for non UK domiciled advisor to Advised/Execution Only Business, the system will display the following warning message Default Transaction Category has been overridden. Do you want to continue?
    The above validation is also applicable, if you change the transaction category during edit/ amend operation.
  5. In case of agent hierarchy, if any entity in the hierarchy is domiciled in UK, you should tag the transaction as Advised or Execution Business.
    In such a case, if you choose the transaction category as Legacy Business, even if any one of the entity mapped in the Hierarchy is domiciled in UK, then the system will display the following warning message Default Transaction Category has been overridden. Do you want to continue?. The above validation is also applicable, if you change the transaction category during edit/ amend operation.
  6. The system will default the Transaction Category field based on the country of Domicile of Advisor, RDR Applicable, RDR Date and the classification of broker at UH maintenance screen.
  7. In case the transaction has broker which is not mapped at UH level and if the intermediary is UK domiciled, the system will default the transaction category to Execution. For non UK domiciled intermediary, the system will default the transaction category to Legacy/Direct Business.
    The above validation is applicable if RDR Applicable is selected as Yes and the transaction date is greater than or equal to RDR Date.
  8. Post RDR, the holdings in a fund due to Share Class Conversion, Fund Merger, Fund Split, Dividend Reinvestment, Reverse split will be classified as Legacy/Direct Business, Advised Business or Execution Only Business based on the category of original holdings.
  9. If a regular savings plan is in force at the RDR date, the system will continue the front end commission to be paid on each subsequent contribution. In addition, the system will tag the units/ shares allocated to the transaction as legacy/direct.
  10. If for a existing or a new SI (post RDR Date), the SI is amended for escalation, then the system will display the following warning message SI is being escalated for UK domiciled broker transaction – Do you wish to continue?

    If the transaction category is amended, the system will reflect the new category from next SI generation onwards.

  11. For Non-UK domiciled advisor, all transactions including Switch/SI/escalations in SI will continue to be marked as Legacy/Direct Business irrespective of the trade date/SI registered Date.

Parent topic: Maintain System Parameters