Last-minute arguments are still raging within the FSA over the final draft of the retail distribution review, with the market set to segment four ways and doubts hanging over the future of the IFA tag.
Sources close to the RDR say a draft paper, which is understood still not to have been finalised, proposes scrapping the term IFA and categorising the market into four segments – holistic generic advice, simple advice, general advice and professional.
Mid-market advisers would fall into the general category and, under new requirements, be forced by the regulator to move towards more transparent charging structures reminiscent of factory gate pricing.
One source suggests there is a concern that regulatory pressures will force mid-range advisers to become professional financial planners or simplified advisers within a two-year window, resulting in a polarised advice market. Other sources believe the FSA will use regulatory incentives rather than force to increase professionalism but it will demand transparency.
It is also understood that proposals will appear in the discussion paper to significantly raise the capital adequacy level for advisers from its current £10,000 to as much as £50,000.
Ernst & Young head of insurance sector Shaun Crawford says: “It is not a threat to advisers themselves but it is a threat to the term IFA.”
FSA spokeswoman Sam Bennett says: “We cannot comment on what is in the retail distribution review at this stage. But we would say that the proposals put forward in the discussion paper are industry-led solutions which have been suggested by the five working groups.”