Regulator sets RDR response deadline

The Financial Services Authority (FSA) has set an end of October deadline for responses to proposals issued in last week’s Retail Distri­bution Review (RDR) consultation paper.

Among those proposals was the banning of the process of advisers receiving commission from product providers and rebating it to consumers. The aim of this move is to ensure that all recommendations made by advisers are not influenced by product providers.

“We do not believe the potential for product provider commission to bias advice, or to undermine trust, can be properly dealt with while product providers continue
to set commissions receivable by adviser firms,” stated the consultation paper.

Trail fees will be renamed “on­going charges” but these will only be allowed when there is an ongoing service to the client, except for when a client has an investment they make regular contributions to.

The RDR also proposed the splitting of the financial services industry into three parts: independent advice, restricted advice and basic advice (non-advised sales). The term “restricted advice” would apply to advisers who only offer clients investment products from a limited range or one product provider.

For those advisers who want to retain independent status, the RDR proposed a new handbook definition for “retail investment products” to which its independence requirements will apply.

In addition to the packaged products, “retail investment products” will include unregulated collective investment schemes, all investments in investment trusts and structured investment products.

It will also include other investments which offer exposure to underlying financial assets, including exchange traded funds (ETFs).

As a result, the FSA says a key challenge for independent advisers will be: “to ensure they have sufficient knowledge of all of the types of products, which could give a suitable outcome”.

To aid this widening of know­ledge, the RDR confirmed all advisers, except basic advisers, are to be trained to Qualifications Curriculum Authority (QCA) Level 4 by the end of 2012.

The FSA aims to issue a policy statement containing the final rules in the first quarter of 2010. The proposals will then take effect from the end of 2012.