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Our final RDR response to the FSA

Why we believe the RDR is the right direction for the financial services market.

In June 2009 the FSA outlined its proposals on how independent and restricted advice, Adviser and Arranger Charging and professional standards would change following the implementation of the Retail Distribution Review (RDR) in 2012. They invited feedback from financial advisers and providers on the proposals by the end of October. 

On 30 October 2009, Scottish Life's parent company, Royal London, responded to the FSA supporting many of its proposals, in particular Adviser Charging.

Our response also outlined our support for

  • the extension of the new standard for independent advice to a wider range of products and
  • the proposed new disclosure requirements that aim to improve clarity for consumers about advice services.

Our responses to the FSA questions were simple:

In depth

Find out more on our:

  • Do we agree with widening the product range for the new independence standards?
    Yes. If independent advisers are to provide advice that is truly unrestricted, it is important that solutions recommended to consumers take into account all the products available to them.
  • Do we agree with the proposals for a new disclosure requirement?
    Yes. It is essential that consumers understand the nature of the service they are receiving – and paying for.
  • Do we agree with the proposals on Adviser Charging for firms that give advice?
    Yes. With the separation of product charges and advice charges, consumers will be given greater confidence that they are being recommended the best product from those available.

Why we support Adviser Charging

The key points we made to the FSA were:

  • We fully support the concept of Adviser Charging on advice relating to investment.
  • We believe Adviser Charging will help customers understand and value the advice service they are paying for.
  • We believe that Adviser Charging will make it more likely that customers are recommended the best product available from the market rather than one from the provider that is willing to pay the most.  More generally, it will remove the perception of advice potentially being biased by providers manipulating commission payments.
  • We believe that factoring of adviser payments is necessary to maintain the regular premium market but support the idea of factoring being available on a standard basis to avoid possible bias by providers.

Adviser Charging - we know it can work for both consumers and advisers

Under the RDR proposals, advisers will need to discuss up-front how they will be paid and agree it with their client, rather than by being paid commission set by product providers.

We recognised several years ago the need for an alternative way for advisers to take a fee – one that bridged the gap between product-based commission and client fees and which was transparent and easy to explain to clients.

As a result, our customer agreed remuneration model called Financial Adviser's Fee (FAF) was the first of its kind to be launched to the market in 2003 and now accounts for:

  • over 90% of our individual new business and
  • 70% of our new group pensions schemes1. 

And this is while initial commission is still widely available from other providers!

We believe that for the market to work in the way envisaged by the new RDR proposals, it is vital that all forms of provider influence on adviser remuneration (such as "soft commissions") are removed from the market. 

Next steps

The FSA plans to publish a Policy Statement containing their final rules in the first quarter of 2010. We look forward to the next updates from the FSA on advice criteria and regulatory changes.  In the meantime, you can use our feedback form to tell us what you think of RDR.

Note:

  1. Figures as at Q3, 2009 for individual new business and Q2, 2009 for our new group pensions schemes.

For professional advisers only