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The distribution landscape
The latest RDR paper has been slightly clearer on what markets will be affected.
Scottish Life’s View
Like in previous updates, we’ll declare our interests up-front. Scottish Life only sells its products through IFAs and EBCs.
Although we don’t have anything to gain directly from tied advisers labelling their services as “advice”, we welcome this change in the FSA’s thinking. It is fundamental that customers must know exactly what services they are receiving and so if a tied adviser is offering advice, it should be labelled as such. By diminishing the service tied agents offer, there was a danger that it would reduce public access to financial advice.
Having said that, we don’t believe that the average person will view a tied adviser or provider-owned advice firm as independent. The “independent” label is a strong one and must be reserved for those firms that are not owned or part-owned (beyond minor shareholdings) by a provider.
Similarly, on the labels theme, “Sales Advice” is a label which is likely to be very confusing for consumers. Advice entails a personal recommendation based on a customer’s needs so if Sales Advice is to meet this standard, what does the ‘Sales’ term signify? Again, customers have to be clear about what services they are receiving. We’re therefore pleased that the FSA will be carrying out detailed research into the ‘labels’ that could be used to describe, and to differentiate, the different types of service.
We agree with the FSA that all firms that hold themselves out as offering “advice” must be held to the same high standards of professionalism. In other words, tied agents must meet the same level of remuneration transparency and qualification criteria as independent advisers.
We are also supportive of the suggestion that a wrap and IFA OEIC should not become a default option for all clients if the adviser is to label their services as independent. However, we are deeply unconvinced that a firm that is wholly owned by a provider would ever be considered ‘independent’ by a consumer.
The pensions and investment markets are obviously within scope.
However the feedback paper is less clear when it comes to the protection markets, simply saying that the FSA will assess the implications for the protection market as it develops proposals for COBS. More decisively, the FSA has "not so far identified a need" to apply the RDR to the mortgages market.
The interim feedback paper put forward a tentative proposal to clearly separate the market into ‘Sales’ and ‘Advice’. Controversially, this involved putting tied agents such as bank/insurer direct sales forces and multi-ties under the Sales banner, with ‘Advice’ reserved solely for independent advisers. Needless to say, this caused much ruction in the market with AIFA and many advisers vociferously supporting the proposal while the ABI and BBA were against it.
The latest FSA paper has moved some distance away from this simplistic landscape and instead accepts that, in reality, there is some obvious overlap between independent advice and sales. In fact, the paper suggests that the previous thinking ran a significant risk of reducing the accessibility of advisory services which (credit where it’s due) demonstrates the FSA isn’t afraid to admit its proposals are sometimes wrong.
The landscape the FSA will be consulting on is illustrated below.
Source: November 2008 FSA RDR Paper
- Sales will cover non-advised selling such as sales conducted via a guided process, and execution only business. A key change from the previous FSA thinking is that there will also be overlap with ‘Advice’, in the form of tied advice or ‘Advised Guided Sales’.
- Advice will cover independent advisers who will be required to provide unbiased, unrestricted advice based on a full and fair analysis of the relevant markets. This will not be restricted to packaged products.
- Sales Advice will cover non-independent advice, for example where a product or provider range is limited, such as with a tied or multi-tied adviser. Non-independent advisers will need to make clear the limitation of their services but meet the same professionalism and remuneration standards as Independent Advisers.
- Money guidance will be given a clear role, in that it will guide customers on where to go for help on different types of investment services. Additionally, there will be overlap with Advice and Sales firms e.g. a review of client’s ability to repay debt.
In terms of the independence label, the FSA has stepped back from one of their more challenging suggestions in the previous paper. Advisory firms owned or part-owned by providers will not lose their ‘independence’ label, however this issue will be kept under review.
Two of the lesser-spotted points in the paper were buried in sections 4.56 and 4.57. The former suggested that advisers who put all clients on to the same platform (i.e. wrap), might not be truly independent and could not label themselves so. Section 4.57 implied that advisers using their own OEIC for all clients could also fall short of independence.
Finally, there appears to be much agonising over what is or isn’t a Guided Sale. There is clearly demand in the market for a light-touch regulatory regime for non-advised Guided Sales but the FSA believe that most models presented to them to date have constituted “advice” (because of definitions contained in MiFID (Markets in Financial Instruments Directive)) and were therefore within the existing frameworks. However, the FSA has left the door open for firms to work further with them on providing a simplified advice process.
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