Retail Distribution Review Newsletter (11/48)

1 December 2011

Introduction

Notwithstanding some significant criticism of the Retail Distribution Review the FSA are pushing ahead with its implementation, which is well under way according to a recent FSA newsletter. The FSA claim that over 90% of all retail investment advisers are either already qualified or expect to be qualified by December 2012. Of all of those advisers who attended an FSA roadshow some 87% claim to either have implemented their charging structure or to be in the process of doing so. A further breakdown of the figures quoted above between “have qualified” and “expect to qualify” and “have implemented” and “are in the process of implementing” would obviously give the sector a more accurate view of where exactly it stands at this point in time.

The FSA have finalised a number of rules and published guidance on a number of areas to give firms the information they need for a successful implementation of the RDR. This includes rules confirming that payment of trail commission can continue. (see Rules published 8 November 2010) A further Consultation Paper was published on 16 November 2010 concerning the clarification of the treatment of legacy assets.

Additional Accredited Bodies

Six bodies have been added to the list of accredited bodies in the handbook. Their role is to verify that advisers are meeting FSA’s new professionalism requirements. They can also be used to support advisers in meeting the professional standards whether that be in terms of qualification gap-fill, CPD or ethical behaviour.

Latest Issues

Final rules on data collection through the Retail Mediation Activities Return (RMAR) and adviser complaints.
- See FSA’s policy statement PS11/13. This sets out the rules on collecting data through the current RMAR and on adviser complaints as per the FSA’s supervisory approach post 2012.

Firms that make personal recommendations on retail investment products or group personal pension schemes will be required to report adviser or consultancy charging data in their RMAR submissions. If an investment manager provides a personal recommendation on a retail investment product the firm will be required to supply data on adviser and/or consultancy charges depending on their business advisers.

The timing and frequency of a firm’s current reporting requirements for the firm’s RMAR has not changed, but firms should check what aspects of PS 11/13 apply to them. The new rules take effect from 31 December 2012 but firms will not need to submit their first report for the new data requirements until their first full reporting date after the date of implementation of the new rules.

The FSA have published two templates that show the information that they will be requesting. This will allow firms to prepare the information for their first return after 31 December 2012.

Complaints

Firms will be required to break down their current regular complaints reporting data to the level of individual advisers, detailing:

the number of complaints;
the number of complaints upheld; and
the amount of redress paid in the firm’s last reporting period.

In addition, the FSA will need to be alerted when an adviser is subject to three or more upheld complaints in a 12-month period, or when an adviser is subject to a complaint where redress is paid of £50,000 or more. The FSA have published templates that show the complaints information that they will be requesting.

Confirmation of when Trail Commission can be taken.

The final rules published 8 November and coming into force 31 December 2012 mean that

if a client chooses to move to a new adviser, the trail commission can be re-registered to the new adviser provided that an ongoing service is provided in return for the commission
if an adviser retires say and sells his client bank to another adviser this bulk transfer can also be re-registered. In this case it is not necessary for the new adviser to provide an ongoing service.

Product Disclosure.

The FSA product disclosure rules are designed to assist in the reduction of the information imbalance between customers, product providers and advisers. With that overall objective in mind the FSA have made a number of changes to Key Features Illustrations (KFIs) from 31 December 2012:

Product providers that facilitate adviser charges for investments will have to describe the product charges and adviser/consultancy charges separately.
Where personal pensions are involved there will be changes to the EoC table and RIY information to show the separate effect of product charges and facilitated adviser/consultancy charges.
With the introduction of auto-enrolment in October 2012 there will be a transitional provision to enable the preparation of generic illustrations for group personal pensions.

Capital Requirements

Firms are reminded that following publication of Issue 2 of the RDR Newsletter the implementation of new capital rules and reporting rules for personal investment firms due to come into force on 311 December 2011 was deferred until 31 December 2013. (see Handbook Notice 112 08/11).

Simplified Advice.

This consultation is closed and final guidance will be published in Q1 2012. The focus of the guidance is on the issues raised through FSA’s engagement with the industry, which are in relation to suitability, adviser charging, professional standards, service disclosure, complaints and redress, and product suite.

Platforms Market

It is the FSA’s intention to carry out further research before consulting on any new rules on the remuneration of platforms. (See PS11/9)

Common Misconceptions

Firms need to sell unregulated collective investment schemes (uCIS) to be independent. Not true.
Advisers need to consider products from around the world when providing independent advice. Not true.
Not able to give advice because you have not received your statement of professional standing (SPS) before the end of 2012. Not true. FSA are allowing some flexibility for the first SPS, of up to 60 days from the end of 2012. In addition advisers with specific personal circumstances, such as ill health, may apply for a waiver.

For full detail of this latest newsletter see here.

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