Sources close to the RDR say a draft paper, which is understood to still not have been finalised, sets out proposals for advisers to choose between becoming professional financial planning firms or delivering product-led solutions on a purely transactional basis.
It is thought the paper divides the market into four categories under the headings holistic, simple, general and professional.
Holistic refers to generic advice, simple refers to product delivery from banks and purely transactional advisers, general refers to the majority of IFAs that exist today and professional refers to those advisers that have gained a certain professional qualification.
The understanding is that one of the proposals being discussed will give advisers in the general category a deadline of as little as two years to move into either the simple category delivering product-led solutions on a transactional basis, or for them to achieve CFP or equivalent status and give high level advice but with a limited capacity to sell products.
As first revealed by Money Marketing in April, it is also understood that proposals to raise the capital adequacy level for advisers from its current £10,000 to £50,000 will appear in the discussion paper.
Advisers have expressed concerns over these proposals saying if they are implemented they will drive smaller IFA firms and sole traders out of the market.
Helm Godfrey managing director Bruce Wilson says: “Two years is totally impractical to achieve chartered status if this is what is being suggested. Are you telling me that after advising for twenty years and having numerous exams under my belt I am going to have to take another bunch of exams to gain chartered status? It seems a mystery to me.”
SimplyBiz chairman Ken Davy says: “That type of proposal would, on the face of it, create future confusion for the consumer for minimal, if any, gain. But it is only a discussion paper and these are ideas which will need to be properly debated and costed. It is self-evident that many of the conclusions in it will be flawed.”
CBK principal Peter Chadborn says: “The capital adequacy requirements are concerning for those smaller advisers that are not part of a network. The two year window is not long enough for adviser firms to move to chartered or certified status so if these proposals go through, there is a risk that many advisers will be forced to take the simple transactional route in the timescale.”
Threesixty services partner David Bratessani says: “The question of sustainability may, whilst offering an opportunity for the better IFA practices, pose a threat to the mass market as there is likely to be considerable pressure to raise capital adequacy requirements and put greater pressure on firms to ‘self-issue’ potential claims post exit rather than relying so heavily on FSCS. There is likely to be pressure from the banks to increase capital adequacy requirements as this suits their business models.”
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. The proposals in the discussion paper are not final.”
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