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No restriction on vigilance

The FSA will be extra-vigilant when policing the new independent and restricted advice categories after RDR, warns director of retail policy and conduct risk Dan Waters.

He says the FSA will be on the lookout for firms which try to blur the boundaries between independent and restricted advice.

He says: “We expect to be more demanding and intrusive in our supervisory approach and to enhance the quality of information we are getting, for example, from our product sales data, so we can spot outliers in terms of charging and concentrations of particular types of selling. The other part of that puzzle is the conduct of risk division, which will be ramped up to a bigger function to look at the quality of service being delivered on the ground.”

Waters admits that the new Professional Standards Board will inevitably push up costs for advisers, whether it is independent or part of the FSA.

He says: “If the PSB is set up as part of the FSA, that is more than what we are doing now and will cost money, so it is not like one option is really expensive and one option is free. If one is more expensive than the other, we need to determine how much more and whether it is worth it.”

Waters insists that the PSB’s remit must not overlap with the FSA if it is set up as a separate statutory body.

He says: “If stakeholders want an independent PSB, some of the things that the FSA is doing now we would not need to do. We have to be very clear about the line between our super- vision of firms and this body’s oversight of individual people and their profess- ional standing and eliminating the possibility of overlap and duplication.”

The FSA will consult on this separately in the autumn.

The regulator has warned that it will stamp out any closing down sales on high commission from providers looking to boost IFA business before adviser charging comes into force. Waters says the FSA has already identified questionable behaviour at a number of firms.

He says: “We are already conscious of that behaviour and there are some firms that we have looked at. I am hoping that after all the debate and the consensus in the industry to move to a different arrangement that builds confidence, there will not be too many firms that jump at that kind of opportunity but we will have to be vigilant.”

Waters also insists the FSA’s work on distributor-influenced funds will continue, adding that firms operating in that area should tread carefully.

He says: “This remains a source of concern to us. There are people who are saying distributor-influenced funds by definition are compliant with the RDR but that is not right.

“It is quite possible to get it completely wrong. This is a separate debate we need to have and this is something that firms that operate in this space need to be extremely careful about.”

Waters disputes suggestions in the industry that the RDR will slash adviser numbers, saying that some estimates are “way, way too high”.

Industry players such as Aviva have predicted that adviser numbers will drop by as much as half but the FSA estimates the fall-out to be a more modest 15-20 per cent by 2012.

Waters says: “I do not think anybody knows exactly what the impact will be. I think some of the numbers out there are way, way too high.

“We have come in at somewhere between 15-20 per cent and is all of that down to the RDR? Of course not. There are so many things in play here that will affect the number of IFAs by 2012.” Waters suggests that the workplace assessments should help limit any exodus but he insists that this is by no means an easy route.

He says: “This is not a soft touch option because we cannot limit who it is offered to. Anyone advising now could potentially take advantage of that, which means it has got to be equivalent, otherwise you are just pretending to raise standards.

“We are trying to be flexible but I do not want people to be under the misapprehension that we are going to look at a couple of their files and say that is all right.”

Waters defends the FSA’s decision not to introduce a long stop for IFAs. He says there was insufficient evidence put forward proving that the benefits to IFAs would outweigh the costs to consumers.

He says: “We know that if we were to operate a long stop it would be detrimental to consumers. But nobody could put a cogent case to us as to why this was going to make such a big difference to IFAs in a way that could outweigh those detriments.

“We did try. We kept a sincerely open mind right through the process but nobody was able to come up with the argument so we landed where we landed.”

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