The FSA has published a factsheet setting out its position on the RDR questions most frequently asked by advisers at recent compliance and risk awareness seminars. We present some of the issues advisers say they are struggling with, and the FSA’s response.
How are you going to supervise the RDR? The FSA will assess RDR implementation through firm visits and regulatory reviews over the next three years. Regulatory reviews will focus on governance, culture and controls. Thematic reviews on particular aspects of the RDR will also be carried out over the next 18 months.
My firm has already had a regulatory review. Will I receive another visit in 2013 on RDR? Firms who have already had a regulatory review will not be visited again specifically relating to RDR compliance, but RDR progress may be checked during the year.
Independent and restricted advice
What must I have on file to prove I have been offering independent advice? Firms need to evidence they are able to advise on all retail investment products capable of meeting their clients’ needs and objectives.
Where a firm uses research to distil the product market, it should evidence selection criteria and its product research, and how these are consistent with independent requirements. If a firm excludes a retail investment product from its panel, it should evidence why this is in the client’s interests.
Independent firms need to be able to advise off-panel if in the client’s best interests.
The FSA says it would question a firm holding itself out as independent but without a mechanism for advising on a particular product, such as investment trusts or exchange traded funds.
Why do I need to recommend unauthorised collective investment schemes to my clients? Ucis are potentially suitable for sophisticated or high-net-worth retail clients. A firm’s independent status will not be affected if it does not consider Ucis for ordinary retail investors who are not sophisticated or high net worth.
Firms do have to be “willing and able” to advise on ETFs and unit trusts to be independent.
What do I need to do on my suitability reports to show I have not considered certain retail investment products? Suitability reports need to set out a client’s needs and explain why the recommended transaction is suitable, along with possible disadvantages of the transaction. Firms do not need to set out all the products that have not been recommended.
Can I use a single platform and remain independent? The FSA says it expects it to be very rare, if possible at all, to use a single platform for all investment business and remain independent, as generally a single platform will not offer products from the whole of the market.
Do all my advisers need to be able to provide independent advice for my firm to be classed as independent? Yes. A group of restricted advisers cannot be independent even if as a whole they could advise on the entire range of retail investment products. Individual advice to individual clients has to meet the independence rule.
Can you “outsource” certain pieces of advice to other individuals and still remain independent? In most cases, no. If an adviser outsources an area of advice where clients have needs, the FSA says it would question whether the adviser can advise in this area and whether the firm is in fact providing independent advice. The exceptions to this rule are advice on pension transfers, opt-outs and long-term care.
If you visit me, will you criticise the fees I charge? The cost of advice is a business decision, as long as the firm has considered the client’s best interests. The FSA says it can see circumstances where it would be feasible to charge somebody with less to invest a proportionately higher fee than someone with more assets. Material differences in charges from those set out in the charging structure will need to be agreed with clients.
Will my professionalism status show on the FSA register? The FSA is not listing professionalism details on its register. Firms should contact their accredited body if they want this information.
If I don’t achieve the necessary status, what happens to my existing group personal pension clients? Any retail clients, including GPP clients, will need to be advised by an alternative adviser until the original adviser has complied with the RDR.
I took my exams in December; can I continue to give advice while I wait for the results? If advisers have not yet qualified, any retail clients have to be advised by an alternative adviser until they have complied fully with the RDR.