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We need parity of clarity

It is no easy task to try to digest the 220 pages of last week’s retail distribution review announcement. I assure you that Aifa will be publishing more detailed analysis in the coming weeks but here is my starter for 10.

It should be noted that we are entering a period of pre-consultation in the run-up to formal consultation next June. We also need to remember the bigger picture. Fundamentally, the consumer’s best interests and the restoration of trust in the financial services industry are our aspirations.

First, we should acknowledge the good parts of the review. We have previously taken steps to help the IFA profession move to a more transparent charging structure. The removal of the provider from the process should now eliminate any perceived bias that existed. Adviser charging has the potential to defuse this issue. Assuming providers and advisers can find workable solutions, which is a big assumption, this could allow the profession to move to a more positive method of remuneration at last.

The second win for the industry is professionalism. Professionalism does not just mean examinations, nor does it mean mandatory membership of a professional body.

Aifa strongly supports the broad concept of professionalism and the positive message this sends to consumers. Aifa has long pushed for the development of the profession. We welcome the potential clarity over the alphabet soup of designations and the subsequent opportunity for the profession to enhance its standing and expand its positive, trusted consumer image.

Aifa also supports the rise to QCA level four qualifications. This does not necessarily mean any existing diploma qualifications, however. Prior to publication, we stated that we believed the clarity provided by the RDR statement would allow new entrants to enter our market and the paper highlights the FSA’s wish to continue to consider alternative on-the-job assessments. We believe that some form of practical assessment of competency should be considered, as should concepts that echo the way advisers actually work, for example, open book examinations and case studies. We also do not believe in indefinite grandfathering but more attention should be paid to potential supervisory options for some staff, as appropriate and successfully used in certain business models.

Detail is lacking in elements of the statement. Despite positive comments about professionalism, we struggle to see a positive role for an independent professional standards board. I am a firm believer in proportionate and risk-based regulation. Membership of a professional body – or a trade organisation – should be seen as a positive risk indicator and firms should receive regulatory dividends accordingly. I do not believe mandatory membership of a professional body will help this cause but these are well trodden arguments.

One question I will raise relates to liability. The proposals appear to suggest that complaint handling would remain a firm-based requirement under Disp. However, in a possible future world of an IPSB, with statutory powers to discipline or even expel advisers, would advisers be personally liable for their own advice?

Aside from obvious issues of double jeopardy and potential conflicts of interest between business owners and advisers, could this end with advisers being personally responsible for their advice from authorisation to grave?

Firm-based regulation allows for limitation of liability through company formation but individual advisers authorised through an IPSB may not. Considering that the FSA states that it is unable to justify a long stop, we have serious concerns over the monster that we could unintentionally create.

The most widely debated issue is the possible structure of the new market and the advice and sales regimes. Aifa’s original enthusiasm for the interim response centred on the use of clear language that consumers understood. Loss of this clarity is disappointing and we do not believe it will help restore trust.

These are working titles but I conAifa director of policy Andrew Strange says the RDR proposals could lead to confusion over status by relying on disclosuretinue to worry about relying on underlying disclosure to achieve parity of clarity of the revised regimes.

In a purist sense, I agree that sales staff telling consumers what they are not – that they are not independent, that they are limited in their product offering and that the purpose of any dialogue is to result in a sale – could, in theory, offer clarity of service to consumers but we need to consider that previous disclosure regimes have not always been successful and Aifa had hoped that we would not have to rely on regulation and enforcement of regulation to provide clarity.

Acknowledgement of the importance of independent advice is good, the ambiguity of sales advice is not.

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