The FSA has issued a consultation paper on its Retail Distribution Review (RDR), which sets out detailed proposals to implement the wide-ranging reforms proposed in November's feedback statement. The changes, which will take effect from the end of 2012, will improve outcomes for savers and investors by enhancing the quality of advice they receive, and prepare both consumers and the industry for the future.
The FSA is calling on all investment advisers to consider how they will adapt to these reforms. Although challenging, the RDR presents a significant opportunity for firms and individuals in the retail investment market to modernise practices, raise standards and improve the way they treat their customers.
In particular, the FSA is consulting on rules to:
Provide greater clarity for consumers about the advice being offered and to redefine 'independence' - through distinguishing between 'independent advice' and 'restricted advice' (non-independent advice) services; and ensuring that firms describing their advice as independent consider all products and providers that could meet a customer’s needs (so consider all relevant options), free from any restrictions or bias, when making recommendations;
Tackle the potential for adviser remuneration (commission) to bias advice - by requiring advisers to set their own charges in agreement with their clients ('adviser charging') before they identify suitable products for the customer; preventing product providers from offering pre-determined levels of commission and advisers recommending products which automatically pay them commission; and allowing the cost of advice to be taken from the product; and
Raise professional standards - by requiring all investment advisers to be qualified to a new, higher level (equivalent to QCF – Qualifications and Credit Framework - Level 4), regarded as equivalent to the first year of a degree; introducing a code of ethics for advisers and enhancing standards for continuing professional development. These new standards will be maintained and enforced through the creation of an independent Professional Standards Board - the FSA will consult on the establishment of this body in Q4 2009.
Jon Pain, FSA managing director of retail markets, said: "The RDR is about regaining consumer trust and confidence in the retail investment market, building a more sustainable sector and making it easier for people to find their way around and get the help they need – this is more important now than ever before.
"We have today set out the specific changes we propose to make to implement our far-reaching package of measures. This is a call to action for the industry - all investment advisers need to consider how they will respond and implement these wide-ranging and challenging improvements by the 2012 deadline.
"Throughout this process there has been close involvement of the industry and consumer groups, and we look forward to stakeholders’ continued engagement and to receiving their views on the detailed proposals we are setting out today."
To help investment advisers understand the detailed proposals it is setting out today, the FSA has published a series of factsheets on its small firms website.
The FSA is inviting stakeholders to comment on its detailed rules for implementing the RDR – the closing date for responses is 30 October 2009.
