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Transition time

The FSA’s consultation paper 09/18 is now with us and provides the opportunity for the market to digest the FSA’s current RDIP proposals concerning the changing face of the financial services sector.

The first thing to note is how well written the paper is. The FSA has been very positive and definite with the language used. Previous papers have often left the reader unsure as to the true intent of particular aspects.

There is clarity and purpose in this paper and if an issue is not yet resolved, such as the view on platforms or discretionary investment funds, the reader is advised how the FSA intends to deal with these.

Looking at the detail, there can be no doubt that the FSA has remained firm with its intention to drive commission-based selling out of the financial advice process and also to ensure that a roadmap to higher professional standards is put in place.

The undoubted winners are those that have already changed their business models to a fee-based financial planning model and already have a strong client proposition. Businesses and advisers that still rely on commission, retain the traditional business model and have not taken the time to obtain advanced qualifications now have a mountain to climb and that mountain has to be climbed by December 31, 2012.

Higher qualifications, a more rigorous CPD regime, an end to biased advice, standards of professionalism that inspire consumer confidence, adviser charging and the formation of an independent statutory professional standards board are all progress for the industry.

The consumer will undoubtedly be better served by chan-ges contained within these proposals but there is still a vast amount of work to be done to ensure more consumers are able to access appropriate advice for their needs.

The adviser community will definitely shrink in numbers over the short term but the end number will depend on the motivation and ability of the current community to make the changes asked of it.

These proposals will undoubtedly lead to financial services becoming a more attractive career choice for highly skilled young people as well as those looking to change careers. The outcome of the review will be a greater number of businesses with structures that will encourage new entrants into training programmes with aspirations to be a financial planner or to work elsewhere within the profession.

The profession will also be properly established with visible standards and consistency across firms, providing much greater clarity for consumers.

Each adviser will have to reach a similar minimum standard. Some will argue that this standard is still not high enough as an end game but a pragmatic step for the time that we are in.

Everybody involved in giving advice to clients, irrespective of title, will have to be qualified to QCA level 4. As with all of the proposals, this level must be achieved by December 31, 2012.

If people are unable to reach this standard by then, advisers can be supervised for a further two years. There are two choices – existing examinations or a new work-based assessment. The work-based assessment will not be easy and it will not be cheap and the best option for most is to proceed with an existing level 4 qualification from organisations such as the Chartered Insurance Institute or Institute of Financial Studies. If choosing the exam route, ensure you take a range of subjects so you have less to pick up through CPD when the skills council announces the new structure.

Perhaps the biggest challenge for businesses is to make the transition by changing their internal processes to meet the proposed requirements.

A number of firms have spent a lot of time and money addressing TCF issues. This undoubtedly has to be helpful as many firms have seen their businesses improve as a result. Further investment will also see positive returns but not without pain along the way.

The upheaval and timeframe to properly move to the independent model described will take, on average, three years from a standing start.

One of the key areas of change and support required will be in the culture of the business and the development of soft skills that the advisers use with their clients.

Initial and review meetings with clients are going to be improved as asking for a fee and explaining the client proposition and articulating the value will be a massive change for many.

Information concerning the capital adequacy requirements is still to be made available but the capital burden will increase.

It will not be as straightforward as many think to make it to the independent model set out, although the opportunities thereafter will be fantastic. Many businesses will decide not to become independent and it was reported that Hargreaves Lansdown was considering their options here and a number of others will do similarly.

One thing that has already happened is that firms have split the various functions of the client proposition.

There is the financial planning element which potentially could be an unregulated activity. By its nature, this has to be a genuinely independent service with the needs of the client firmly at the centre of the relationship.

There is then the implementation process which could be independent or restricted or done elsewhere.

Finally, there is the service and/or wealth management element, depending on the client proposition.

There are plenty of opportunities for revisiting the business structure to best serve clients and to offer a compelling proposition to meet regulatory requirements.

There is much to think about but it is crucial to get action plans in place now. Read the paper and then make sure you are accessing the support that is available.

Do not forget the experience and support offered by the professional bodies which are ideally placed to help advisers make the most of the tremendous opportunities that lie ahead.

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