I like the RDR interim paper, particularly as it makes the point that financial advisers must be independent and operate on a whole-of-market basis so that investors can easily distinguish between sales and advice.
If this is implemented, we will end up with sales-based and advisory-based advisers and it will mean multi-tied and single-tied advisers will no longer exist. This is a huge improvement on the original RDR proposals. The regulator says in the report: “We may want higher minimum conditions on remuneration transparency to avoid firms from seeing tied and multi-tied as a ‘safe harbour’ to continue existing business practices that do not treat customers fairly.”
Those providers which have shaped their businesses on lucrative commercial terms to restrict product ranges for customers will kick and shout about the paper but I ask you, what is best for the average consumer – whole of market or tied? Product providers buying IFA firms are to be looked into by the FSA over fears there could be impartiality breaches due to ownership issues.
According to www.thepsychologist.org.uk, human nature dictates that peripheral group members and newcomers feel pressured to assimilate to the group and to change their behaviour to become more in line with established group members. It must be hard to rate your owner’s products fairly.
Because “advisory” advisers will need to prove their competence, the industry is being asked to develop a common standard for professional qualifications. The Edinburgh declaration is a step in the right direction in that it will make it easier for consumers to know what qualifications mean. But with over 10 examining bodies offering exams to financial advisers and a plethora of new exams being introduced, it is still confusing. Any adviser wanting to offer advice will need to evidence levels of qualification of diploma or equivalent by 2012.
“Sales” advisers will be able to offer either guided advice or non-advised sales – referred to in the interim statement as money guidance – which is the Thoresen model, requested by the Treasury. The FSA believes the model will raise consumers’ financial awareness even though it remains formally outside the scope of the RDR and will be exempt from regulation. The regulator appears to want everyone reading Money Marketing and the wider industry to help them work out what the compliance rules are for non-advised sales.
The FSA also wants product providers to stop deciding how advisers are paid which would be wonderful for financial advisers who may be able to ask for flexible remuneration terms to suit client needs.
We may see a return to a maximum commission agreement, making commission payment calculations easier. Those with long memories will recall the abolishment of the MCA back in the 1980s before the FSA existed. Even so, the industry continued to use MCA terms to explain the amount of commission payments at a time when commission was rising due to the removal of the cap.
The next FSA RDR update is expected in October and will contain industry feedback on examinations, the delivery of non-advised sales and how advisers are paid, plus the expected rule changes and timetable. So come on industry, speak up and be heard.