Now just 18 months away from the RDR deadline of 31/12/12, the FSA says that all firms should be assessing their business models and making the necessary changes.
There may be a number of considerations that a firm will need to address when making the transition, for example the impact on back-office systems, clients, advisers and financial promotions.
In relation to business model change, the FSA has previously highlighted some key risks where firms may attempt to take advantage of the next 18 months. This could result in unsuitable products being recommended to consumers, including those bearing excessive costs, and unnecessary churn in the retail investment market. They include:
• providers may seek to use the period before the RDR is implemented to acquire market share by offering large commission to advisers;
• before leaving the industry, firms may look to build up their book of commission-based products to make their business more attractive to potential buyers before 31 December 2012; and
• there is a risk that some firms may increase the amount of trail commission on their books, as a way of cushioning the removal of commission on new business carried out post-2012.
The FSA will be increasing its supervisory scrutiny in this area and will continue to intervene where it believes there will be poor outcomes for consumers. It will continue to monitor these risks, and others it identifies, in the run up to the end of 2012.
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