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Editor’s view: FSA puts RDR on the right track

Yesterday’s RDR consultation paper has much to commend it and the review now has the potential to be a positive force for IFAs and consumers.

There are still debates and arguments to be had, notably on the implementation of adviser charging
and the new professional standards board . But at least we are on the right road.

By allowing a work-based assessment as an alternative to examinations the FSA has shown it is willing to listen to the concerns of many practitioners.

The FSA has stood firm against the large banks and insurers who have tried, and will continue to try, to water down the proposed professional requirements of their tied and multi-tied advisers. Any waiving on this point would have sent all the wrong signals to consumers and the industry.

The CP shows the FSA has considered carefully the most appropriate definition of non-independent advice it believes would most differentiate it from independent whole-of-market advice.

A clear sales/advice separation would have been preferable but if the legal barriers to this route are too high, this definition is a step forward.

The FSA will have to be on guard, and it promises to be, against firms who will try their best to blur the lines between the advice strands with clever marketing techniques and sales pitches.

But looking at the new written and oral disclosure requirements for restricted advisers, published in yesterday’s CP, they will hopefully have less room to manoeuvre in their attempts to mask the limitations of their service. The FSA must be prepared to come down heavily on firms looking to blur the divide.

It is particularly encouraging to hear the FSA say it will be keeping a close eye on the internal incentive and remuneration mechanisms of tied and multi-tied firms due to concerns about payment bias.

This newspaper has always been a supporter of increased professionalism and we agree with the FSA and others that work-based assessments must not be seen as an easy option.

The CP confirms the FSA is pushing ahead with the 2012 deadline for reaching the QCF Level 4 qualification. This will be a tough ask for many advisers, especially considering the current economic crisis and the other RDR strains they are faced with. But the number of advisers already taking examinations is encouraging and the work-based assessment should help many experienced advisers uncomfortable with the examination route to reach the new requirements.

It may be sensible for the FSA to stick to the 2012 deadline at this stage, but it must keep a close eye on the number of advisers reaching QCF level 4 in the run-up to the 2012 deadline and be prepared to be pragmatic if necessary to ensure many good advisers are not kicked out of the industry.

But allowing work-based assessment should help ensure the wild, self-interested predictions about the demise of the IFA are consigned to the bin.

A close examination of the role of the Professional Standards Board will also be needed to ensure it does not just turn into an extra layer of cost for advisers. A roll-back of FSA costs must accompany the introduction of PSB. But again if the board is implemented properly it is surely good news to have an industry-led body setting the agenda for professional standards, rather than leaving it to the regulator.

The FSA says it has closed the door on the long-stop but we will continue to put the case for a back-stop on complaints against IFAs to remove indefinite liability.

Such a move would help cultivate the type of professional advice sector the FSA is looking to promote through the RDR.

The increased clarity around adviser charging in yesterday’s paper was also welcome. It is right that providers will have to compete with each other purely on service and product features as they try to re-position themselves in this new world.

There was concern from some quarters that the FSA may try to apply the new rules on on-going charges retrospectively which would have been a huge mistake.

The FSA must work with trade bodies to help ensure commercial credit arrangements, away from providers, are encouraged to aid the adviser/client relationship under adviser charging.

This new landscape has the potential to increase the power of the distributor and it is helpful that the FSA clarified its thoughts on the use of distributor-influenced funds as part of the CP. We await with interest the upcoming paper
paper on platforms.

It was wise for the FSA to keep protection away from the current review with the regulator set to conduct separate work in this area. But its concern over advisers offering more protection due to the RDR seems misplaced. The UK needs more protection advice.

As we move quickly towards the implementation stages of the RDR, the FSA has come up with a set of proposals the industry can work with, although there are still many debates to be had about the details. There is also a question mark over costs, with some suggesting the FSA’s figure of £430m, plus £40m a year, is quite an underestimate.

But yesterday’s paper is a far cry from the blunt instruments put forward by the regulator in its original DP back in June 2007 which would have destroyed the industry.

One has to hope that the FSA has learnt a lot about the industry it regulates in the interim period, in particular the huge benefits to consumers and the UK economy of a healthy and vibrant IFA sector.

It now needs to ensure these lessons are put into practice in the run-up to 2012.


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There are 5 comments at the moment, we would love to hear your opinion too.

  1. RDR
    Whatever the FSA think, no-one can ‘design’ a free market. It is a grand conceit by all clever bureaucrats that the possess the monopoly of wisdom that uniquely empowers them to do so. The FSA has already failed, epically. The RDR will be equally as disasterous in ways that no-one, least of all the FSA, can foresee.

  2. Command and Control
    As Mr Farrell says the bureaucrats always think they know best. The Socialists and Communists tried their ‘Command and Control’ ideas and ruined the economies of many nations in the process. What makes the FSA think it knows better?
    At best they may put in place rules and regulations that address certain specific problems the FSA thinks it has identified. These Rules/Regs may initially appear reasonable but within months the FSA will come back for another bite. They will see the need to ‘strengthen’ or ‘fine tune’ these and they will gradually become deeply entrenched, rigid and fixed.
    This will gradually squeeze the UK Finance sector, making it much more bureaucratic and more and more like the uncompetitive European Finance sectors.
    The reason why London is the pre-eminent Finance centre it is, rest on its flexibility, the fact that it is at the centre of many different markets, its time zone, the English language, etc… etc.
    Confidence can, if it is there over long periods, support markets, BUT as we have already seen when confidence is lost it can BREAK markets OVERNIGHT.
    Like the politicians and their expenses the FSA tells us that it gets it but, like the politicians, we have yet to have the measures/solutions spelt out properly and then we will need to be convinced.

  3. RDR
    Q) What can possibly go wrong??
    A) Everything.

  4. RDR Editor’s comments
    It is very heartening to see the FSA tackling at last the menu of industry failings some of us worked to correct throughout the last 25 years. In particular the commission issue, which has been the intermediaries’ Achilles heel for so long. On the professionalism front, there is still scope for a PSB or single professional body which licenses and regulates individuals, leaving the FSA to concentrate on firms. This would challenge the industry to make its own creative input to standards on a much wider front than exams and ethical codes.

  5. Two views
    I think Paul’s article is very well written and I felt much as he did on first reading. My fear however remains that Steven Farrell is the one that has got it right and the Radio 4 interview of Jon Pain from the FSA on Moneybox on Saturday reinforced my feeling that the RDR is simply an attack on IFAS as the same standards will not be asked of Restricted Advisers with regard “Adviser Charging” as we as advisers charge not just for our advice, but for the admin work we do for a client and hence the latter can be lost by tied firms in the wash.
    I am not anti tied advice having spent about a third of my time advising the otehr side of the fence and I can see the grass both sides, but when you have a sythe one side and the person wielding it always seems to be an employee (former or soon to return one) of the other side, one cannot help but be cynical.
    The Retail Distribution Review has not been what the title suggests, a review of all distribution methods, it has reviewed indpendant distributiuon charges and seems to have ignored tied (now named restricted)
    Finally, as Paul has saidBut yesterday’s paper is a far cry from the blunt instruments put forward by the regulator in its original DP back in June 2007 which would have destroyed the industry.

    One has to hope that the FSA has learnt a lot about the industry it regulates in the interim period, in particular the huge benefits to consumers and the UK economy of a healthy and vibrant IFA sector.” My fear remains they have only learnt half the lessons………………………………

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