The regulator, in its RDR discussion paper issued today, plans to create two main advice channels one for professional financial planners and one for “primary advice”.
It admits that the consequences of increased regulatory and professional requirements will lead to an increase in costs and fewer firms offering services to middle and lower income groups.
The paper says it will consider redefining what is meant by a fee to include an advice charge agreed with a customer and not influenced by a product provider. It will also consider restricting the term independent to this group, as reported by Money Marketing Online yesterday.
It says that prudential requirements may be adjusted up or down depending on what is calls “the nature of their business and the quality of their risk management”.
This suggests that better qualified advisers with clearer payment models and more robust risk controls may have to pay less and hold less capital with the regulator believing they are less likely to go into default and fall on the compensation scheme.
The paper says that firms could qualify for the term independent provided a large proportion of their advisers maintain professional standards.
The FSA is also suggesting that general financial advisers who do not make it into the new professional category willl face a marked increase in prudential regulation thought to concentrate on capital adequacy with another discusion paper on this subject due to be released in July.
It also says: “Higher capital requirements for some of these advisers could make these forms of full financial advice more costly limiting availabilty. This could increase the number of people who are not served by the market simply because they cannot afford it.”
It will consider what transition period will be appropriate because of inevitable disruption to the market.