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Check your progress towards RDR (12/12)

20 February 2012

Introduction

The FSA have just produced (February 2012) a guide for Firms, to enable them to check their progress towards the full implementation of the Retail Distribution Review. This guide covers three key areas:

professionalism: appropriate qualifications, gap fill and statement of professional standing;
independent and/or restricted advice: choosing and implementing your service model; and
fees and business models: moving to a new fee-based adviser charging model.

This guide also raises issues about the Firm’s wider regulatory obligations, such as treating customers fairly, and how these can be factored into the changes made when implementing the RDR.

Key Areas to consider

Have you reviewed the qualification options on the FSA website?
Are the advisers assessed as competent as at 30 June 2009 on target to meet an increased level of qualifications by 31 December 2012, including, where applicable, completing their gap fill?
Are other advisers, such as new entrants, on track to complete their qualifications and gap fill? Their deadline will be the later of 30 months from starting the activity of advice or within 30 months from 1 January 2011.
Are you monitoring advisers regularly to ensure they are on track and that they will have time for any qualification re-sits?
Have those advisers that need to do gap fill considered using the FSA gap fill template to help highlight knowledge gaps?
What are your contingency plans if your advisers don’t achieve the required level of qualification/gap fill by the end of December 2012?
If recruiting, how will you manage the recruitment process and the RDR timeframes?
Are you aware which accredited body/bodies your advisers will use to provide Statements of Professional Standing (SPS)?
How will you monitor/verify your compliance with SPS requirements?
If some advisers move to non-advisory roles because they don’t have the required qualification/gap fill, how will you ensure they don’t give investment advice?
Have you considered what changes are necessary so your Training & Competence regime meets RDR requirements?
Have you made sure that you know what the requirements will be and what changes will have to be made for Continuing Professional Development (CPD), especially recording, measuring and monitoring?

What advice will you provide – independent and/or restricted?

From 31 December 2012, a firm must use the term ‘independent advice’ or ‘restricted advice’ when disclosing the extent of its advice service. If a firm provides any advice that does not meet the independent standard, then it should not hold itself out as independent for its business as a whole.

Just because a firm is ‘independent’ now does not mean it will meet the new RDR definition of independent; many firms will need to make changes if they want to describe themselves as independent in the future. Choosing to provide restricted advice shouldn’t be viewed as the easy option: most of the selling standards that apply to independent advice also apply to restricted advice, including the suitability requirements and professional standards.

Key areas to consider:

Does your proposed service offering fit the needs of your existing clients?
Will you stop offering advice to some clients? If so, how will you manage this change to ensure that you are treating customers fairly?
For firms moving to restricted advice, have you considered what you’ll do about those clients whose needs cannot be met by the scope of your restriction?
How will your existing systems and support functions deliver your new service proposition?
If you are going to describe your firm as independent, what do you need to do to ensure that your firm considers all the retail investment products that may be suitable for clients every time a personal recommendation is made?
How will you ensure that sufficient research is undertaken to support recommendations?
If you are offering restricted advice, how will you explain the nature of this restriction?
If your firm will offer a mix of independent and restricted advice, have you considered how it will market itself?
Have you considered what products you believe will be higher risk and formulated an approach to these products?
Have you considered what controls you will put in place to ensure that advisers provide a service consistent with that disclosed?
If you are planning to use a panel of products to assist you in giving advice, how frequently will you review the panel? What guidance will you provide advisers that want to go ‘off panel’?

An adviser charging model

By 31 December 2012 firms will need to have an adviser charging model in place. When designing this structure it will be necessary to consider the impact this will have on your business model.

Issues to consider

Have you considered with which clients you want to continue providing advice?
Have you considered client segmentation?
Will some clients need an ongoing service or only a transactional service?
How much will your clients be willing to pay and how much can they afford?
Have you looked at your fixed/variable costs and overheads in detail?
Have you considered discussing fee schedules with other professionals, such as accountants and solicitor firms?
Will your charging model expose you to credit risk, and, if so, what will you do about it?
Will you charge an hourly rate, a fixed fee, a percentage of assets under management, ad hoc charges or all of the above?
What impact will the different models have on your revenues and your clients, both in the short and longer term?
Are some charges better suited to some clients than others?
Have you reviewed your back office systems to see if they can be used to help with the changes with the new charging structure?
Have you considered how you will collect and record fees from clients in your new charging model?
How will you describe your services to clients so they are clearly understood?
Have you considered consulting your clients on the proposed charging structure?

Conclusion

The Guide concludes with a series of FSA “Hot Tips” mostly derived from the issues outlined above. Foremost amongst them is the idea of using the issues set out to produce an action plan of what the Firm still needs to do to be on track.

The full text of the Guide can be seen here. If you have queries these should be raised with your CPA Account Manager.

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