A couple of weeks ago I summarised the parts of the Retail Distribution Review Policy Statement PS10/06 which related to the area of remuneration. This time I want to present summary details on describing and disclosing advice services:
Improving clarity for consumers about advice
Independent advice
Broadly, firms will have to describe their advice services as either ‘independent’ or ‘restricted’. The range of products that the rules apply to have been widened and firms providing independent advice will be expected to conduct a comprehensive and fair analysis of the wider range of retail investment products. This means going beyond packaged products and the new framework should enable advisers to provide advice free from any restrictions that might impact on their ability to recommend what is best for the customer. The aim is also to provide clarity for consumers on the type of service they will receive and therefore an explanation of whether the adviser is providing independent or restricted advice will have to be supplied to clients before they receive any advice.
A new term “retail investment product” has been introduced into the FSA handbook. This description not only includes packaged products, but also structured investment products, exchange traded funds, all investment trusts, unregulated collective investment schemes and any other investment that offers exposure to underlying assets, but is in a packaged form which modifies that exposure compared with a direct holding in the financial asset.
Restricted advice
Restricted advice is advice that is restricted to a limited range of products or providers. Naturally, the regulator makes it clear that if the adviser concludes that the limited range of products or providers is not suitable for a particular client, it is not acceptable to recommend the product that most closely matches their needs. Advisers providing restricted advice are still bound by the regulator’s suitability requirements.
Disclosure
All firms providing advice must disclose to clients the type of advice they will receive. This will allow customers to determine whether they are being offered independent or restricted advice early in the process. The Services and Costs Disclosure Document (SCDD) and the Combined Initial Disclosure Document (CIDD) will be amended so that firms who wish to use these documents will be able to satisfy the new written disclosure requirement by completing the document in line with the notes.
Additionally, firms who offer restricted advice will have to provide oral disclosure, to enable customers to understand the nature of the service. This means that advisers offering restricted advice will be required to orally disclose the fact that they provide restricted advice along with details of how their service is restricted. This information must be disclosed in good time, before providing the service.
Restricted or Independent?
Whilst we have two separate types of advice here – independent and restricted, both will be subject to the adviser charging rules and the RDR qualifications requirements. If the adviser wants to recommend its own company’s product or a product provided by a parent company they will need to ensure that they meet the requirements described as well as meeting the FSA’s unbiased and unrestricted analysis requirement.
Simplified Advice
In the Retail Distribution Review CP 09/18 the FSA confirmed that Simplified Advice could be provided within the existing advice rules and therefore in the latest Policy Statement, they have announced that they will not be creating a new regulatory regime for Simplified Advice. There is still, it has to be said, a lack of consensus across the industry, or even within industry sectors, on who Simplified Advice should be aimed atas well as the supporting product suite. The regulator continues to push firms to come up with their own propositions in order that more guidance can be provided moving forward. Given the level of activity in relation to the Retail Distribution Review, we thought it might be useful to provide an updated timetable at this point.
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Retail Distribution Review Activity |
Date |
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2010 |
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Consultation on commission disclosure |
Q1 |
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Feedback on proposals in CP09/18 on implementing CPD and ethical standards |
Q3 |
Decision on governance of professional standards |
Q3 |
Consultation on rules for professional standards |
Q3 |
Consultation on labelling of adviser services (TBC) |
Q3 |
Publish Policy Statement and final rules implementing consultancy charging in the corporate pensions market |
Q3 |
Publish Consultation Paper on Platforms |
Q3 |
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Publish Policy Statement on Platforms |
Q4 |
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Prudential Rules for Personal Investment Firms (PIFs) subject to new prudential rules from 31 Dec 2011 on a transitional basis |
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FSA will carry out thematic work and monitoring on professionalism. Advisers who do not possess a qualification on the transitional list need to qualify at the new level. Advisers who do possess a qualification on the transitional list need to complete any additional CPD top up.
FSA will carry out thematic work and monitoring on remuneration. All advisers and product providers must prepare and be ready to operate Adviser Charging and meet the associated requirements from Jan 2013. FSA will carry out thematic work and monitoring on description of services. All advisers must prepare to describe their services as independent advice or restricted advice from Jan 2013. All advisers must prepare and start complying with the new independence and product requirements from Jan 2013. |
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PIFs must comply fully with the new prudential rules from 31 Dec 2013. |
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Alison Young - 13th May 2010