It's simpler, but will it be better?

The original Retail Distribution Review paper (DP07/01), published in June 2007 was probably, to some extent, an exercise in flying 'lead balloons'.  Some of the original proposals were too extreme, too complex, too unworkable, and so what we are now being presented with in the Interim Report, published on April 29th leaves us heaving a sigh of relief, "Well, that's not too bad."

So, we can all take comfort that the FSA is not likely to ban commission per se - merely intending to remove set levels imposed by product-providers.  Although there is in the text of this report, the implication that the FSA wish to control the level of such remuneration.

The new 'simpler landscape' dispenses with the unnecessary complexities of 'Primary Advice', 'general financial planners' and 'professional financial planners', and simply divides the market up into (1) Advice, (2) Sales & (3) Money Guidance.  One is left wondering, however, how the 'Sales' marketplace differs from the old 'buyer-beware' environment in days of yore.  One is also left wondering, given the almost universal level of financial ineptitude amongst the Great British Public, whether a non-advised 'sales' marketplace will have any positive impact at all.  The idea that simply providing consumers with more information will magically transform their finances seems to be a little far-fetched.

The FSA has also backtracked a little on the minimum qualification levels which would be required for those operating in the 'Advice' market.  Whilst establishing the benchmark at 'Diploma' level, this is not as high as we might have feared, but it will still require quite a bit of work for long-term experienced advisers who are a tad short on paper qualifications.

It is unlikely that IFAs will have anything to do with the Thoresen Review 'Money Guidance' model, but we can expect an ongoing lively debate about the interaction and overlap between 'Advice' and 'Sales'.  The market is unlikely to be quite as clearly delineated as one might initially think - and this possibility is anticipated in the Interim Report.

The Good News is that 2020 Financial Services, in attempting to anticipate how these things are going map out, has already been putting in place the bones of an 'RDR-friendly' model for advice:

• the use of 'pure Wraps' in order to facilitate a completely transparent discussion with the client regarding adviser remuneration
• a new client engagement letter, allowing the adviser to spec-up the financial planning assignment, and document precisely how the work will be paid for
• a whole new 'principles-based' advisory framework, including a COBS-friendly compliance review process
• the development of a new advice documentation tool focused entirely upon outcomes
• recent updates to our Fee-Based Advice transition guide, and our 'IFA Practice Template' to reflect the latest emphases

There's a lot more to do, but we're getting there!

Please note that this publication from the FSA is merely an 'interim' report, so no doubt there will be many more changes along the way.  We'll do our best to keep you informed.