09 April 2012

ABI responds to FSA's guidance consultation on RDR - Independent and restricted advice.

The ABI is broadly supportive of the guidance outlined in the paper, and welcomes the clarification on the compliance requirements for independent advice post RDR. It remains concerned regarding the differences between the FSA and EU definitions of independent and non-independent advice.

Executive summary

• The ABI is broadly supportive of the guidance outlined in the paper. There is still much confusion over the compliance requirements for Independent advice post RDR and the ABI welcomes the clarification provided in the guidance consultation.
• However, the ABI believes that the regulator’s supervision strategy post RDR will be very important in firms' understanding of the RDR rules. It is important that the regulator’s policy and supervision teams work closely together to ensure that everyone is clear on the interpretation of the new rules. The ABI would welcome confirmation of what the supervision strategy will be post RDR.

• ABI firms believe that the guidance concentrates heavily on the suitability and best interest requirements for independent advice and is not clear enough that the requirements are the same for providing restricted advice. Poor consumer outcomes could result from a lack of understanding that both independent and restricted advice alike must take account of suitability and best interest rules.
• For example, there is a danger that advisers who have a restricted advice proposition and offering a single platform/model portfolio/discretionary fund management solution may have the incorrect view that as they are not providing independent advice, they are exempt from the same suitability requirements as for independent advice. For this reason, the ABI suggests explicit clarity in the finalised guidance that this is not the case.
• ABI would also appreciate more guidance on what constitutes acceptable service from advisers post RDR, particularly in relation to ongoing service. It has been suggested in previous guidance (such as the finalised guidance on questions at RDR road shows) that operating on a retainer basis for certain clients post RDR will not be acceptable. The ABI would ask for further explicit clarification on the acceptable service level which FSA will expect.
• ABI remains concerned regarding the differences between the FSA and EU definitions of independent and non-independent advice. The FSA is confident that the proposed EU definitions will not affect the RDR and the ABI asks for more detail on the mechanism for how this may work in practice.
• The guidance differs slightly from some firms’ previous understanding of the “relevant market”. It is helpful that the guidance clarifies that relevant market refers to the client’s needs and objectives, and not (as previously assumed) all investment solutions, both domestic and overseas, which are available.
• With regards to recognised specialist activities, the guidance suggests that it is acceptable for an adviser to remain independent and not advise on these areas. However, it is less clear if the act of referring a client to a specialist adviser will affect a firm’s independent status. It would be helpful to have explicit guidance on this issue.
• With regards to all the points above, some good and poor practice examples for both independent and restricted advice propositions would be helpful. This would enable firms to understand the guidance and ensure that they have interpreted the rules in the same manner as their regulatory supervisor.

© ABI