UK managing director Richard Wastcoat says the proposals are full of holes and fudges and if they are introduced as they stand they would be wide open for abuse.
He says: Take the customer agreement remuneration proposal: this calls for the adviser and the client to agree the cost of advice, though this fee can be a traditional commission. By allowing advisers to call this a fee, they can claim the title of independent – provided they have the required qualifications. This will do little to end product bias.
The proposed introduction of primary advice will also enable advisers using the
Car system to jettison the requirement to scour the whole market for the most suitable product and sell just a limited range of investments. In short, if the contents of this paper were implemented today, advisers could receive higher remuneration, based on a narrower product set and still call themselves independent. That would be a retrograde step.
Wastcoat also says the primary advice and its dependence on simple products outlined in the RDR could open the door to misselling.
He says: An index fund is simple to explain but that does not make it low-risk. Under the criteria outlined in this paper for simple products, with-profits bonds would qualify. Even the FSA’s own example -guaranteed equity bonds- have been controversial.
For all these reasons, it is vital that there is a vigorous debate about these proposals during the consultation period.