The latest issue focuses on: the FSA's Consultation Paper on platforms; gap-fill; the FSA's stance post-RDR on fund switches within pensions; and help with independent and restricted advice requirements.
Consultation paper on platforms
The FSA published a Consultation Paper (CP12/12) that proposes to ban payments from product providers to platforms and cash rebates from providers to consumers. The FSA is consulting on the following:
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ensuring investors pay a transparent and explicit fee for the service of a platform;
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banning all payments from product providers to platforms and cash rebates paid to investors;
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applying this ban to both advised and non-advised (direct to consumer) platforms; and
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reading across the ban on payments from product providers to the wider retail investment market, such as life companies and Self-Invested Personal Pension (SIPP) operators.
The proposed changes will make charges clearer to investors, increase competition in the market and diminish the potential for platforms to favour certain products over others. Both investors and advisers will be able to compare different platforms more easily.
There is a three-month consultation period, ending on 27 September, 2012. The
FSA aims to publish a Policy Statement setting out the final rules by the end of the year and provide platforms with over a year in which to implement the necessary changes to business models.
On the FSA's radar
Non-commission payments and benefits
One of the central aims of the RDR is to address the potential for adviser remuneration to distort consumer outcomes. The FSA's adviser charging rules aim to ensure that firms are only remunerated by adviser charges in relation to the advice and related services they provide, these charges being agreed and paid by their clients.
Unfortunately, the regulator reports a number of firms that seem to be looking for ways to circumvent the adviser charging rules. This includes soliciting or providing payments that do not look like traditional commission, but are generally intended to achieve the same outcome – to secure distribution.
The
FSA is concerned that non-commission payments and benefits may be indicative of firms seeking alternative ways to preserve features of the market that the RDR intended to address. It has always said it would take any necessary action to deter firms from frustrating the intended market outcomes. The regulator is considering ways to reinforce its expectation that firms can only be remunerated by adviser charges in relation to their new advisory business.
Review into commission driven sales
The
FSA identified a risk that some firms would ignore their customers’ best interests and seek to secure higher levels of initial and recurring commission income, potentially leading to unsuitable advice. It has conducted a review looking at this risk and want firms to be mindful of the following poor practices:
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failing to consider customer’s wider financial circumstances resulting in financial detriment;
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recommending switching to new products without due consideration of the associated costs;
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inadequate or inappropriate documentation of suitability;
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failing to fully consider the clients’ risk appetite or capacity for loss;
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failing to obtain full Know Your Customer information; and
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failing to fully consider tax efficient alternate solutions.
Over the next 12-18 months, the
FSA will continue to examine its data to identify firms where it sees adverse activity in the run up to the end of the year and beyond. If the
FSA finds evidence of adverse activity in relation to the points above it will take action as required.
© FSA - Financial Services Authority
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