The FSA’s latest thinking on the RDR.
Qualifications
No grandfathering, on the grounds a blanket grandfathering process either by age or experience would contravene the Equality Act 2010.
No transitional process where advisers would be allowed to continue working under the supervision of an appropriately qualified supervisor, whilst they continued to gain the qualifications.
The FSA argued it had already been lenient enough on qualifications, and that a supervisory approach would not work.
No “formal plan” for Level 6 as standard, but it is being kept “under review”.
Commission
There is “a risk” consumers would not want to pay to advice. The emphasis is on the development of other advice channels and simplified advice as the solution.
Trail
If an ongoing adviser charge is levied after 2012, that has to be clearly against the provision of a continuing service.
Factoring
The FSA said there is no evidence that the current indemnity commission has led to any substantial increase in new saving, and there is some evidence that it has encouraged churn in the market.
Factoring will not be allowed as the discount rate offered by product providers would have the potential to bias the recommendations of adviser firms.
Level playing field across bank advisers and IFAs
The FSA said it is currently scrutinising reward structures for in-house sales staff across the advisory sector.
Types of advice
There will be different types of restricted advice, but the FSA is not being prescriptive in terms of what is meant by restricted or how a firm describes its services.
Firms will be able to say, ‘I am restricted but I specialise in a particular area of activity’.” The FSA believes this will prevent consumer confusion.
Simplified advice
Firms have to offer the service, not the FSA, so that determines whether the service is available. The FSA admits the industry isn’t yet sure enough about the rules to launch any compliance services, and the regulator is trying to speed this up.
It will publish a paper on Simplified Advice in the summer.
Transition
The FSA is planning a crack down on firms that are rushing to build up trail before 2013, including by banning them. It will look at trends among particular advisers, and compare them.
It supervises smaller firms by looking at trends and looking at returns data.
Overall costs and benefits
The FSA will measure the success of the RDR using continual monitoring, including consumer research on the confidence and trust that they have in the market.
Data from firms estimates the costs for the first five years of the RDR would range from £1.4bn to £1.7bn; an increase from earlier estimates of £0.6bn. It said the potential annual mis-selling for retail investment product new business is about £0.4-0.6bn.
Access to advice
The FSA said the impact on market capacity and structure will be limited, as some firms just change their service description from independent to restricted because of the new definition of independence.
The FSA will be monitoring the changes, including exits during and after the transition. Even if demand for advice outstrips supply, entry barriers are low, so new entrants should join to replace those who leave.
