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RDR CP: FSA warns it will take action against commission closing down sales

The FSA has warned it will come down hard on adviser and provider firms that attempt to “frustrate” its aim to quash commission-bias.

In the RDR consultation paper, out today, it states: “We will monitor for signs of firms finding alternative ways to
preserve features of the market that our proposals are intended to address and will take the necessary action to deter firms from frustrating the intended market outcomes.

“There are a number of ways in which product providers might seek to exert influence over advisers both in the transitional period and after the rules take effect. To prevent this, we will identify and challenge those business models most likely to exploit the RDR.”

The regulator intends to monitor product sales data for provider firms to identify trends, for example increased sales of high commission products, and through its conduct risk toolkits, such as the pension switching template published earlier in 2009, it will challenge adviser firms to explain any increases in switching it identifies.

The report adds: “As the RDR will not apply retrospectively to legacy business pre-2012, we will monitor and take action on firms exploiting this situation in order to maximise their revenue without also adapting to the RDR in the run up to 2012.”

The FSA states that to ensure its proposals deliver a genuine reduction in the potential for product and provider bias it will monitor and challenge the way that product providers and adviser firms implement the new adviser charging requirements.

It states: “This will involve supervising the way that adviser firms set and operate their own adviser charging tariffs and ensuring that provider firms do not continue to influence adviser remuneration directly or indirectly.

“Furthermore, as more provider firms begin to introduce systems for collecting adviser charges, we will monitor the checks and balances that firms may introduce, including any new systems, to ensure that adviser firms, and not providers, are genuinely taking the lead in setting their own charges.”

The regulator has also warned providers that adopt factory-gate pricing early against including only product charges when submitting data to its Money Made Clear website.

The report states: “There is a risk that firms that introduce factory gate priced products ahead of the RDR deadline in 2012 may include only product charges to ensure their products are at the top of the tables.

“As part of our supervisory strategy through the transitional period up to December 31, 2012 we will monitor for this type of behaviour and take action to counter it.”

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