The FCA’s latest board minutes reveal a number of new RDR concerns to add to the worries about dealing bias expressed in recent weeks.
The board questioned the continuation of commission for non-advised investment sales and discussed the risk of “poor consumer outcomes” from allowing trail commission to continue on pre-RDR business.
The need for a clear distinction between advised and non-advised sales was also discussed, with concern customers may think they are getting regulated advice, and the safeguards which come with it, when they are not.
These worries follow FCA chief executive Martin Wheatley’s recent comments about the dangers of dealing bias in certain post-RDR fee models.
The FCA will be conducting a number of thematic reviews on these matters, feeding into a post-implementation RDR review next year. It appears likely this will lead to yet another wave of regulatory change.
Commission for non-advised sales was always likely to catch the regulator’s eye, especially with many adviser firms offering a non-advised service in areas such as annuities and the FCA move to ban execution-only platform payments.
In April, FCA technical specialist Rory Percival told an industry roundtable that “if it looks and feels like advice, it probably is advice,” and we can expect a significant crackdown if the FCA finds evidence consumers think advice is being given on non-advised services.
Perhaps the most controversial move would be a sunset clause on pre-RDR trail and renewal payments. The regulator has always been clear these would be allowed to continue and firms have based future business plans on this guidance.
There are also question marks over the legality of unpicking certain ongoing payments which were arranged as an alternative to higher upfront commission at the time the advice was given, with no expectation of ongoing service.
The April 2016 ban on legacy fund group payments to platforms is already threatening many trail arrangements and plenty of such payments will naturally convert to adviser charging after client reviews.
The FCA is concerned about the possible incentive for the adviser to do nothing but such a dramatic, destabilising intervention should require significant evidence of consumer detriment.
After giving advisers such strong past reassurance that these payments could continue, a ban on pre-RDR trail would leave a bitter taste in the mouths of many firms who have made significant strides to abide by the FCA’s RDR rules and could open the door to possible legal action.