Adviser > Your business > RDR > December 2009 Update > Scottish Life's response to the FSA's Consultation Paper 09/31
Scottish Life's response to the FSA's Consultation Paper 09/31
Why we believe the RDR is the right direction for the financial services market.
In December 2009, the FSA published Consultation Paper 09/31 welcoming industry views by 16 March 2010 on their proposals for delivering the Retail Distribution Review (RDR). Our parent company, Royal London, responded to the FSA supporting many of its proposals and highlighting areas that need further consideration.
Summary of our responses to the FSA questions:
Professionalism
In depth
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Your views on delivering the RDR and our responses to it are always welcomed.
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Do you agree that the internal model will achieve broadly the same outcome as an external Professional Standards Board (PSB)?
We accept the process of setting up a publicly accountable body from scratch would be time consuming and, potentially, expensive. Using the FSA's existing powers and infrastructure makes sense providing it does reduce costs although we would expect to see the PSB becoming increasingly independent over time. -
Do you think the arrangements described will support the aim of beginning to improve the reputation of retail investment advice?
Yes. -
Do you agree that these proposals will provide advisers with transferable evidence of their qualifications?
We believe that mapping all modules on the transitional list to the learning outcomes set out in the new Financial Services Skills Council (FSSC) exam standards should be closer than the preferred FSA option. It's important that advisers can be certain that they are studying the right things.
Corporate pensions
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Do you have any comments on our analysis of the current GPP market?
We agree that the considerable activity in the market in recent years is primarily down to schemes switching between providers rather than genuine new money. Some of this has had no obvious consumer benefit. - Do you agree with our proposals for applying the principles of adviser charging to the GPP market?
Yes, we strongly support the concept of Consultancy Charging for the provision of adviser services to employers. Consultancy Charging will remove any commission bias and lead advisers to compete for clients based on the value for money of the advice services they offer, while providers must compete for an adviser's attention on the basis the value for money of the product features and service proposition they offer. This will ultimately produce better outcomes for scheme members.
How we think Consultancy Charging should be applied
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A key tenet in our view is that in the first instance deductions should be from employer's contributions. This gives much greater validity to the notion of an employer agreeing Consultancy Charges on an employee's behalf. This sum should be disclosed to the members.
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We understand the proposal for allowing commission payments to continue on GPPs set up before the commission ban. However, we can envisage a situation, after the introduction of the commission ban, where corporate advisers are actively resistant to switching scheme providers, even when a switch is in the members' interests.
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To counter this risk we propose that there is a "sunset clause" placed on the concession for pre-commission ban schemes. A well-publicised removal of the concession would counter market stagnation caused by adviser wishing to preserve historic sources of commission.
Why we disagree with the ban on factoring of adviser remuneration
Many employers may be unwilling to agree to an up-front payment to meet the cost of the adviser's scheme set up and advice services but would be happy to negotiate a spread payment.
There will be members of a scheme who require individual advice either at the point of joining or at certain times while they are contributing. It is only fair that the adviser should be paid for this sometimes time-consuming service at the point the service is provided.
In the absence of factoring there is a very real risk that advisers will be unwilling to provide individual advice and member needs will go unmet.
We therefore recommend that factoring should be permitted but only using an industry standard formula.
Next steps
The next paper we expect from the FSA is a policy statement and final rules for charging and advice following the responses to CP09/18. This paper should be available at the end of March 2010 and we will be giving you a summary and our immediate reactions as soon as we can.
Reference:
Consultation Paper 09/31: Delivering the Retail Distribution Review: Professionalism; Corporate pensions; and Applicability of RDR proposals to pure protection advice. Financial Services Authority, December 2009.
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