The FSA has told advisers it is concerned about the risk management practices of some firms who transition too quickly to abide by the retail distribution review requirements.
Heron House Financial Management managing director Saran Allot-Davey says the FSA has highlighted to her that it is concerned that firms who move to a new business model in line with the RDR may not be taking full account of the risks of this new model.
Speaking aboard the Aurora at the PIMS conference in a session about investment processes, Allot-Davey said: “An area the FSA has mentioned to me as a concern is the risk management oversight in firms. As firms transition from the old model to the new model, if they are transitioning quite quickly these firms can end up an incredibly different firm from where it started.
“Therefore the FSA wants to see that the firm is sitting down and thinking about what the changes are to the business model, what the new threats and risks are to the firm, and how it is going to deal with those.”
The FSA warned about the emerging risk of firms transitioning to the RDR in its Retail Conduct Risk Outlook document in February.
The regulator said it was concerned that if providers choose to offer larger commission and advisers look to maximise recurring revenue before the RDR is implemented, this could result in unnecessary churn and excessive consumer costs.