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13 October 2011

FSA Woodall: RDR implementation considerations


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Linda Woodall, Head of the FSA's Investments Department, spoke at the Personal Finance Society conference in London on some of the key challenges facing firms with the implementation of the RDR, and what firms should be doing to meet the new requirements.


Recent FSA information suggests that:

  • 48 per cent of advisers are level 4 qualified but require gap-fill, and 42 per cent are still studying to meet FSA requirements.
  • 61 per cent are working towards implementing their adviser charging model and 26 per cent already operate a compatible model.
  • 71 per cent of firms will remain independent, 4 per cent will offer a restricted service, 4 per cent will offer both and 21 per cent have not yet decided.

The FSA has been conducting work with retail investment product providers and is currently conducting a survey of these firms to understand the progress they have made on implementing the changes that the RDR requirements will mean for their businesses. These survey responses will help to target supervisory activity on the firms that have the most ground to catch up.

Considerations for change

Returning to the adviser population, there are four overarching considerations:

  • meeting the professional standards requirements;
  • deciding and implementing a service proposition, including whether an independent or restricted advice service will be offered;
  • deciding on a charging structure that’s suitable for clients and business; and
  • ensuring systemsand controls support the implementation of the RDR.

Firms need to look at their business as it currently stands: clients, staff, systems, processes and controls.  These are the building blocks of a business, and the starting point for the changes that need to be made. 

Professionalism

Professionalism is one cornerstone of the RDR. By raising professional standards, the quality of advice should also increase. The FSA has identified a number of firms where the engagement of senior management is providing both challenge and support to those responsible for their training and competence regime. The challenge has been focused on the robustness and achievability of the overall planning to meet the RDR deadline, while the support has focused on adding weight to the message being delivered to advisers that they need to follow their individually tailored plan to attain the QCF level 4 requirements. These individually tailored plans have ranged from simply setting out the requirements left to achieve QCF level 4, including relevant levels of gap-fill on previous qualifications, to those at the more structured end of the spectrum. As well as tailored plans, management has recognised that advisers need time and guidance to help them through, so they have also implemented a mentoring programme to do just that.

The FSA anticipates that through increasing their professional standards, advisers will be better placed to deliver quality services to clients – armed with better knowledge than before. But firms will need to continue to support advisers beyond their exams. For example, by updating training and competency processes to ensure advisers maintain their knowledge through relevant CPD and demonstrate adherence to ethical standards.

Adviser charging

Woodall said it was safe to say that implementing a suitable adviser charge has the potential to be the most challenging element of the RDR. She emphasised that the best starting point is the client, and advised speaking to clients, finding out what service they would like to receive and how much they would pay for it. She also advised thinking carefully about how all the rules will impact on business and the options they present, and making sure firms can deliver on their service commitments.

Independent or restricted

Independence is one area where the FSA sees and hears a number of misconceptions or misunderstandings. The RDR standard for independence is advice which is unrestricted by product providers and product types. If you limit your advice to certain product types, for example pensions, you will be providing restricted advice, and should not label your service as independent. Restricted advisers are still subject to the same professionalism standards.  They are also subject to the same suitability requirements and so the quality of advice should be to the same standard as independent advisers. The difference is simply in the breadth of the recommendations the adviser can make, and that they need to disclose to their clients how their advice is restricted.

Key questions

  • Should I offer independent of restricted advice?
  • How should I charge for my service?
  • How am I going to ensure my advisers are competent?
  • What do my clients need?
  • How am I going to meet those needs?
  • How am I going to charge for my services?
  • How can I explain these changes to my clients?

Systems and controls

RDR is a major change for the industry and involves substantial changes for many to the way that their firms operate - how most firms provide advice to clients and how they are remunerated for their advice. This in turn means a fundamental change to business models and how the business is run. Logically therefore systems and controls must be analysed to see whether these are still appropriate for the new world.

Supervisory approach going forward

Over the remainder of 2011 and throughout 2012 the FSA will be actively reviewing how firms are implementing the RDR. The FSA has conducted a number of surveys with firms over the past year and will be following up with further surveys and information requests in 2012. Firms can also expect to see the RDR appear on the agenda for FSA supervisory meetings, both for small and larger firms, in the lead up to implementation. This will all be supported by thematic work focused on RDR readiness in firms, to help the FSA identify those firms that are doing well and those not so well.

In addition, the FSA is also undertaking two targeted pieces of work. One is on centralised investment propositions to understand current practices in this area, to establish whether clients are receiving the associated advice to a standard that meets current requirements but also with a view to the position post RDR. The FSA is also looking at the quality of advice when recommending clients to invest into single premium investment and pension products.

It is to be hoped that all of this supervisory work ahead of RDR implementation will elicit further examples of good practice, although it may also identify some practices that are less than good.  But by spotting these good and poor practices early – and sharing these with the industry, the FSA hopes to improve the overall quality of implementation and, in turn, the overall quality of advice for clients. 

Closing remarks

The FSA is aiming for the following from the RDR:

  • First, to improve consumer trust in the advice market.
  • Second, to establish a resilient, effective and attractive retail investment market where good firms and competent advisers prosper.
  • Finally, RDR is about improving the market for consumers and firms. The FSA sees these mechanisms achieving this.

Full speech



© FSA - Financial Services Authority


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