The FCA is examining how to better distinguish between advised and non-advised sales and weighing up whether commission should be banned on non-advised business.
Minutes from the regulator’s June board meeting, published today, also reveal concerns about continued ongoing pre-RDR trail and whether this “might lead firms to act in ways that risked poor consumer outcomes”.
The board discussed a number of “key issues” in how the retail investment market is developing post RDR. Under an item on the agenda entitled “RDR – state of the nation”, the minutes say the board discussed “the need for a clear distinction between advised and non-advised sales, particularly those non-advised models that could be misconstrued by customers as advice, such as decision trees”.
The board also talked about whether continuing to pay commission on non-advised retail investment sales posed potential risks.
FCA technical specialist Rory Percival warned in April execution-only services could be subject to advice rules if the customer believes they have received advice.
He said: “In practice, the customer’s perception is a very key determinant of whether it is advice or not. One of our lawyers, within what was the FSA, said to me, ‘If it looks and feels like advice, it probably is advice’, and that is actually quite a good test.”
The minutes also reveal concern at board level about the recent high profile exits from mass market advice. The regulator discussed “whether it was possible to further analyse the calculations underpinning the estimated costs of distribution for the banks/insurers that had recently withdrawn from the market.” The board plans to monitor whether an advice gap has emerged and if so, how big the gap is.
Axa, which closed its UK bancassurance arm in April, told Money Marketing it would have had to charge a 6 per cent advice fee in order to deliver advice profitably.
Other topics under discussions included findings from the FCA’s thematic review into how firms are implementing the RDR, published last month, around the need for advisers to spell out advice charges in cash terms and the “increased risk of churn” due to contingent charging, where charges are dependant on a product sale.
The board also discussed trail commission on pre-RDR business and whether the lack of a specific end date on pre-RDR trail “might lead firms to act in ways that risked poor consumer outcomes.”
The minutes state: “The executive explained there would be a post-implementation review in 2014 when the RDR had been in place for an appropriate period. Success measures for the policy had been published and these would be reviewed to ensure they were appropriate.”