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On the level

The FSA’s latest update on the retail distribution review is due later this month but few people are anticipating a dramatic change from what has already been set out by the regulator.

The drive for profession-alism from the FSA is unlikely to see a departure from its stated aims of increasing transparency in the remun-eration of advisers and an increase in the minimum standard of qualification required to act as an adviser.

As has already been sugg-ested by the FSA, the minimum qualification is likely to apply across all distribution chan-nels, whether direct, tied or independent. In fact, at the ABI’s biennial savings summit in London last week, FSA dir-ector of retail policy Dan Waters restated the FSA’s position on qualifications, regardless of the type of advice given.

Waters said: “We think, from the view of consumer communication, if you are trying to build a brand for advisers that is a profession, to say, by the way, here are some other people who are also advisers and will also be calling themselves advisers just because Mifid allows it, is just a recipe for going nowhere.”

But what does this mean for practising advisers. Although the detail of what will compromise a QCA level 4 qualification is still to come, many IFAs will either already be at the required level or will be very close to it.

According to the CII, there are already 135,000 people qualified to QCA level 3 status, the level immediately below the new base level. In addition, 14,000 advisers have reached at least diploma level (what used to be called the advanced financial planning certificate).

The CII is lobbying for the QCA level 4 standard to be set at the existing diploma level qualifications, which means that all those 14,000 current diploma holders would already meet the new minimum requirement.

And for those who are yet to meet the proposed standards, the CII has set out its vision of what the new qualification will look like.

In the latest in its series of discussion papers on increasing professionalism in financial services, the CII has turned its attention to what the new QCA level 4 exam should look like.

According to the CII’s vision, in order to practice, an adviser would have to pass a core competency exam as well as four or five additional subject specific exams. Advisers would then also have the option of addit- ional subject-specific exams if they want to advise on specialist areas.

The new exam will be made up of three distinct parts, fundamentals, products and uses and application. Fundamentals would cover regulation, the UK tax system and ideas such as investment principles, risk and how the advice process works. Products and uses would look at three areas – debt and protection, investment products and pension products. Finally, application would look at putting personal financial planning into practice.

The CII suggests the compulsory subject specific exams would cover pensions and retirement options, pension transfers, equity release, long-term care insurance and supervision in a regulated environment.

The amount of study req-uired to achieve the exams is not insignificant. The CII sugg-ests that to achieve the current QCA level 3 certificate needs a minimum of 280 hours of study. For the diploma, it suggests 370 hours of study are needed as a minimum.

The new format exams would see this raised significantly, with the core exam requiring around 370 hours of study but the additional five subject-specific exams each requiring another 50 hours of study each.

On a practical note, the CII says the exams should be a mix of multiple choice, short written answers and essay writing, including a test of written commun-ication skills.

In setting out its ideas for the new exams, the CII has said it does not want to compromise on the rigour of the examination for financial advice and that if financial advice is to be perceived as a profession, it needs higher levels of technical knowledge and understanding.

For those advisers who are already at diploma level or who have already started on their programme to reach diploma level, then, provided they have reached this goal by 2012, they will be able to maintain QCA level 4 qualification, with some continual professional development to fill any gaps in knowledge that exists.

But for new entrants and those who have not made any effort to increase their qualifications, this could be the shape of things to come.

If advisers don’t like the shape of the CII’s proposals, the good news is they are only proposals at this stage.

CII chief executive Dr Alexander Scott says: “In developing a new model for the regulator, practitioners and other stakeholders to consider, we are drawing on the experience of educational expertise and practitioners alike to develop something which we believe will meet the needs of both the market and the wider public interest.”

But as he says, this is only its suggestion. The CII is encouraging feedback on its proposals and if you feel strongly enough there is still time to get your voice heard on the make-up of the exam.

But if there are not any changes, this could be the benchmark exam that shapes the future of distribution.


The Lion’s share

Stockmarkets have rallied strongly since the beginning of March. This is certainly a welcome change after a dire year in 2008 but I would not be surprised if markets paused for breath at this stage. Whether or not this rally can be sustained is the big question in investment at the moment.


Passing the buck?

The Adam Smith Institute has slammed the FSA’s response to the financial crisis, saying its failure to recognise the extent of its own failings compromises its ability to improve regulation.

Profit from loss

Last week, I looked at the provisions determining how trading losses incurred by UK companies could be used to bring tax relief to the companies incurring them.

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