The FSA’s latest RDR consultation paper contained welcome new thinking in its relaxation of the definition of alternative assessments and acknowledgement that adviser-charging is wholly unsuitable for protection.
But the regulator’s new proposals for group pensions, specifically extending its ban on provider factoring to GPPs, risk damaging an important part of the regular savings market.
The regulator has shown it is willing to listen to the industry in its new definition of alternative assessments for reaching the required QCF Level 4 standards by 2012. Its previous ill thought-out plans for oral assessments were always going to be unworkable and it is wrong to suggest written examinations are the only way to evaluate professional standards.
Allowing such assessment methods to be used on an ongoing basis, rather than just as a transitional arrangement until 2012, is also a sensible move and will hopefully encourage more awarding bodies to offer work-based assessments.
Alternative assessments will be allowed by the FSA as long as they meet the requirements of the qualifications regulator. The FSA points out that OfQual is the same framework used for National Vocational Qualifications and apprenticeships where practical assessments and coursework are often taken into account within the award. All content must also meet the Financial Services Skills Council exam standards.
This will hopefully open the door to assessments that take account of the needs of advisers unhappy about taking examinations.
With the 2012 deadline fast-approaching, awarding bodies, in conjunction with the qualifications regulator, need to be quick to set out any alternative assessments they plan to offer.
Sesame has expressed concern about the lack of detail surrounding these assessments but it seems right for the FSA to leave it as open as possible for the awarding bodies to put together their own assessments.
One major concern will be the role of the FSSC in rubberstamping any assessments. The current turmoil at the skills council should not be allowed to get in the way of this assessment route.
Rather than totally rejecting Aifa’s call for regulatory dividends instead of arbitrary cliff edges, the FSA should show more willingness to engage with this sensible premise. Heavy on the regulator’s mind must be the damage caused by a large number of IFAs leaving the industry.
Moving on to protection, the FSA’s decision not to extend adviser-charging to this sector is also a correct one. The consultation paper shows the regulator has taken on board the howls of criticism that greeted the regulator’s previous paper which suggested a possible read-across.
The FSA appears now to acknowledge that meddling in this area risks damaging a section of the market which is functioning well.
Unfortunately the regulator appears less perceptive of potential market damage in other areas.
From 2012, commission on group pensions will be outlawed and replaced by consultancy charging agreed between the employer and adviser.
The FSA admits it does not have conclusive proof of the risks of provider bias and sales bias caused by commission in the group market being realised. However, with only a few providers still offering initial commissions and evidence suggesting that the payment of initial commissions is heavily influencing market share, it was always likely that the FSA’s views on adviser-charging would be replicated for group pensions.
The big concern is the FSA has also decided to read-across its unpopular ban on provider factoring to the group market. This has the potential to severely limit the levels of advice available to individuals in group schemes.
As per the individual market, the FSA argues that allowing factoring could lead to provider bias being retained in the system. It also believes that a standardised factoring arrangement would fall foul of competition law.
Surely there is a fair argument that allowing standardised factoring could be a means of promoting, rather than hindering, competition? The FSA should be prepared to have this fight with the Office of Fair Trading and/or the Competition Commission. It would also be helpful if the FSA provided more evidence to support its belief that standardised factoring would be unlawful.
The FSA’s other stock argument against factoring is that the regular savings market is pretty small anyway so why bother worrying about it. Firstly, this displays an ignorance of the desperate need to foster a greater saving culture in this country. The Government and its financial regulator should be encouraging more people to look after themselves and their family through improving savings rates. The RDR has the potential to do this but only if implemented properly.
Secondly, this point has less relevance to the group market where millions of individuals are saving regularly in group schemes.
The FSA appears pretty blasé about the potential damage to existing provision in its suggestion that any reduction in take-up will be countered by the introduction of personal accounts and auto-enrolment into qualifying group schemes.
It acknowledges that a ban on factoring may lead to less people getting advice with initial charges being set at high levels which will be unpalatable to employees. But it believes the Government’s pension reforms will sort all this out- a big, and perhaps dangerous, assumption to make.
The FSA suggests the ban on factoring will lead to IFA firms leaving the GPP market. According to the FSA, this does not matter as the business will be swept up by Employee Benefits Consultants already operating on a fee-basis. Again a worrying lack of acknowledgement of the value of the advice many IFA firms have been offering over the years.
In its latest CP the FSA has shown it is willing to listen to some of the constructive criticisms put by the industry. Let’s hope that it remains in listening mode.
In its quest to bring greater transparency to group pensions the FSA risks damaging, rather than encouraging, an important part of the savings market.