29 May 2012

Risk.net: Stripping out commission will transform UK market, says FSA's Woodall [RDR]

Linda Woodall, head of investments at the UK Financial Services Authority, talks about the balance between consumer protection and the need to police financial advisers ahead of the Retail Distribution Review.

The financial crisis has thrown up numerous opportunities for regulators to balance the protection of consumers with a reprimand for advisers - from banning the marketing of collective investments to making sure that advisers are qualified - but Linda Woodall, head of investments at the UK Financial Services Authority (FSA), says the whole UK financial market could be transformed by stripping out commission. 

"Improving the professional standards of advisers has got to be a good thing for everyone, and this should help with advisers recommending the best products to their clients, but we also want to eliminate the bias that arises when product providers pay commission to advisers for recommending their products", says Woodall. "There has been a tendency for some product providers to individually influence advisers, but post-RDR, independent advisers will be expected to look at the entire retail investment market."

Ms Woodall notes that the FSA is not saying there is no place for structured products. "But rather that it is vital that recommendations of these products follow a thorough assessment of the client's goals, needs and current financial circumstances (and that any regulatory restrictions are adhered to)."

She says that the FSA's recent readiness survey showed that 59 per cent of firms are already relying totally or predominantly on an adviser-charging model, although, again, the figure is lower among the larger firms at 32 per cent. "However, unfortunately, we have also encountered some at our implementation surgeries who haven't yet taken steps to develop an adviser charging structure. This remains a big concern for us. Implementing a suitable charging model has the potential to be the most challenging element of the RDR."

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