The FSA’s interim report, published in April, has proposed a structure that would consist of IFAs who have higher minimum training standards than today, equivalent to the Chartered Insurance Institute’s diploma level, offer access to whole of market, operate consumer-agreed remuneration and are members of a recognised professional body.
At the other end of the spectrum, salespeople would guide prospective customers through a process to match products to their needs but would not make recommendations. They would sell from a limited range of products although this might include protection products. It is not clear what training requirements would exist for salespeople but it is likely to be equivalent to the financial planning certificate.
Salespeople would not be advisers. This would be a major departure from today’s environment where tied and multi-tied advisers advise clients and make recommendations under strict FSA rules and on contracts that they have set up with providers.
The FSA’s interim report also proposes a new information and guidance service based on the Thoresen review of generic financial advice, known as Money Guidance, which would not be FSA-regulated.
At first sight, the FSA’s proposals look like they would wipe out tied advice but the FSA acknowledges that this would create significant problems and sets out three options.
The first would be to force tied advisers to change their business model radically and become IFAs or salespeople. No middle way is proposed.
The second would be to create a new version of sales called sales with persuasion.
The third option would be to allow tied advisers to become full advisers, provided they meet higher standards of remuneration, disclosure and training.
It is likely that none of these options will be palatable to many of today’s advisers who do not come under the independent umbrella. In other respects, the FSA has shown that it has listened to the industry. It appears to have done away with its multi-tiered advice model comprising professional, general and primary advisers.
It has also dropped the requirement to have chartered status as the minimum training standard although many advisers would probably accept higher training standards if other areas of the market received the same level of regulatory attention, for example credit card debt.
The FSA is also not being too prescriptive about remuneration levels and acknowledges that factory gate pricing may be more difficult for mutual fund products and group personal pension plans than for insurance bonds. The FSA wants to retain the link between independence and access to whole of market and to give incentives to advisers to pursue the highest qualifications.
It is disappointing that the FSA has not taken the chance to bring mortgages into the RDR. The market for advice on mortgages should be considered alongside investment products.
The two markets overlap significantly. Many investment advisers also operate as mortgage brokers and should be considered in a co-ordinated way.
The right structure for the market should be for only whole of market advisers to be allowed to call themselves independent, as at present.
However, tied and multi-tied advisers should still be called advisers in any new regime. To suggest that many of today’s advisers can no longer call themselves advisers is perverse.
Requiring tied advisers to change their business models would force many to offer a more limited service, if not to leave the industry, increasing consumer detriment by reducing access to advice. If there is some movement on this by the FSA, the price to pay may be a requirement to be more transparent about the cost that the consumer pays for the advice.
Hopefully, if any radical changes are to be made, there will be a long transition period, given the potential impact of a sudden change on the industry and on individuals whose businesses and careers will be at stake.
Tony Reardon is principal of Reardon Consulting