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The whys that came in from the code

When the FSA replaces all self-regulatory organisations as sole regulator

for the financial services industry, a single handbook of rules and

guidance will replace the 14 rulebooks that currently apply.

Part of the new rules is the Code of Business Sourcebook detailed in the

FSA&#39s consultation paper 45. This sets out and reinforces good business

practice for client relationships and encourages fair and clear

communication to build consumer confidence in the financial services


The FSA&#39s approach of evolution not revolution means that IFAs will

already be familiar with much of the detail – and there certainly is a

great deal of detail. The 400-page document has provided plenty of food for

thought for the compliance boys, who will latch on to the minutiae of the

technical detail.

But having deliberated, cogitated and digested the information, it is fair

to say that the paper does not just regurgitate all the old rules. In its

quest for simplification, the FSA has sought feedback on many issues and

this paper will kickstart debate on a number of areas which affect IFAs&#39

business, including:


The FSA&#39s attempt to simplify product disclosure – in the first instance

through consumer research – must be applauded.

The amount of statutory information required for a single product is

likely to test most consumers&#39 – and IFAs&#39 – patience. But pity those who

go on to buy a package of products. A mortgage, plus term insurance, plus

income protection, means that consumers will receive more than 20 pages of

data. Most of which, I suspect, will go unread.

The FSA could simplify the process further by:

Allowing IFAs to make point-of-sale illustrations electronically.

Making projections optional on certain less investment-focused products.

Changing the presentation of status disclosure – although, clearly, this

could only be implemented after the polarisation review – by making the

terms of business letter shorter and more readable.

When changing the rules on disclosure, the regulator must make sure they

are consistent with other proposals such as those for mortgage disclosure,

league tables and requirements for stakeholder pensions.


Very few rules exist to govern the use of the internet and other

electronic media. Instead of embracing the vision and acknowledging the

distinctiveness of this medium, the FSA appears to be treating e-commerce

aslittle better than a glorified means of delivering key features.

The result is that the same rules that govern the way firms communicate

through product literature and over the telephone now extend to internet

and email communications, too.

The FSA could be accused of being short-sighted by focusing on e-commerce

as we see it today. It ignores the value of the web in terms of the ease of

interactive access it provides and the way it helps consumers navigate

through complicated information. By trying to apply dated rules to new

systems, there is not enough flexibility to adapt the rules and guidance to

cover the long-term potential of e-commerce.

Projection tables

More controversial is the plan to do away with projection tables. While

this is not yet a firm proposal, it is up for discussion and will have a

big impact on IFAs. It is important that projections remain an intrinsic

part of key features to give consumers some idea of the value of the

contract in the future. Otherwise, how will they understand their plan?

Without a projection, consumers will be reduced to making comparisons

based on each firm&#39s assu-med rate of return, potentially enabling product

providers to hide high charges and poor inv-estment returns.

The FSA could improve the projection system by reviewing rates more often

to ensure they are realistic and making it clearer to consumers that the

figures given are not guaranteed.

Financial promotion

Whether it is a result of the simplification of rules going too far or a

genuine desire to introduce new requirements – at odds with the FSA&#39s

statement that: “We have not proposed any changes of policy substance” –

there do appear to be some new requirements. The regulator will need to

provide additional guidance on many points, including:

Clarifying the circumstances under which a pro-duct provider can supply

IFA-specific product lit-erature. The paper suggests that IFAs will now

have to pay all the production costs for product literature. Previously,

costs were only incurred for non-standard literature.

Surely, as long as a standard version of direct-offer financial promotion

material is available at no cost to intermediaries, it should not threaten

FSA principles?

Identifying any limitations on software that provider firms can offer

intermediaries to enhance the quality of service to their customers. This

would create a more level playing field.

A change to the approval process which appears to suggest that once a

financial promotion has been approved by a provider the IFA can communicate

it without having to take responsibility for it.

Clarifying when an article (like this one) becomes a fin-ancial promotion.

Full details of consultation paper 45 are posted on theFSA&#39s website at

The regulator has already consulted practitioners within the industry. In

addition, it has issued the consultation paper to stimulate comment as it

seeks reassurance that, in consolidating so many rulebooks, it has not

slipped up and inadvertently created technical and practical difficulties –

such as asking advisers to pay for provider literature so their

independence will not be compromised.

While life offices and trade associations will be dottingthe i&#39s and

crossing the t&#39s on their responses, it is adviserswho are best placed to

comment on how these simplified rules will affect them in their day-to-day



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Iain Chadwick

The Budget 2015: a brief overview

Following George Osborne’s delivery of his sixth Budget as chancellor and the last of this current parliament, we have provided a brief overview of the initiatives put forward in his statement, focusing on the topics that have an impact upon the pensions landscape, savings, personal taxation and businesses.


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