RDR explained - and why we are ahead of the game at ASPL
The development and implementation of The Retail Distribution Review (RDR) by the Financial Services Authority (FSA) is a key part of the Government’s consumer protection strategy. The RDR development programme was launched in June 2006 by the Financial Services Authority (FSA) with the intention of putting in place measures which will enhance consumer confidence in the retail investment market.
We are now in the latest phase of RDR consultation, a three-month consultation period, ending on 27 September 2012. This is aimed at enabling the FSA to set out the final RDR rules by the end of the year and provide retail investment market businesses with over a year in which to implement necessary changes to their business models.
The consultation is about proposals to ban payments from product providers to platforms (for example, fund supermarkets and wraps) and cash rebates from providers to consumers. Issues being explored include the following:
- Ensuring investors pay a transparent and explicit fee for the service of a platform
- Banning all payments from product providers to platforms and cash rebates paid to investors
- Applying this ban to both advised and non-advised (direct to consumer) platforms
- Extending the ban on payments from product providers to the wider retail investment market, such as life companies and Self-invested Personal Pension (SIPP) operators.
The FSA use of the term platform is generic and covers at least two different financial product and service arrangements – fund supermarkets and wraps. Whilst these have some similarities they are not the same.
Fund supermarkets were originally designed as basic trading platforms providing access for investors to a wide range of mutual funds. Because inclusion on the fund supermarket is dependent on the fund managers willingness or ability to pay, access to the range of funds available may not be to the full open market. Some fund managers simply do not want their funds distributed through the fund supermarkets while others simply cannot afford to share their fees. Fund supermarkets were originally designed only for trading funds and the only tax wrapper that was available was an ISA. More recently some have included other tax wrappers such as pensions and unit linked bonds.
Wrap platforms are in some respects a natural extension to the services offered by the fund supermarkets. Their charging model means that they can facilitate access to the widest market. Use of the platform is charged directly to the client, which means that funds and other investment vehicles are not excluded from selection simply because of their own charging structure. Not only is the whole market of unit trusts and open ended investment companies open to selection but so too are other investment vehicles not available on fund supermarket platforms. To offset some of the platform charge to clients and to remain competitive with the fund supermarkets, favourable terms are still negotiated with as many fund managers as possible.
The biggest fund supermarkets have for some years claimed that they have developed into wraps, blurring around the definitions and the services offered. However, two main differences have remained in that for wrap platforms the client has paid the platform charges, whereas for the fund supermarkets the fund managers paid the platform charges. Secondly, wraps have offered whole market access in terms of investment availability, whereas fund supermarkets, although having an extensive range of funds to choose from, do not access the client investor to full market choice.
The FSA expects that the proposed changes will make charges clearer to investors, increase competition in the market and diminish the potential for platforms to favour certain products over others.
When RDR becomes active on 31st December 2012, consumers needing help and advice with their retirement and investment planning, should feel that they can have confidence and trust in the new RDR regulated retail investment market.
One significant area of change for businesses offering help and advice is that their advisers are required to meet new standards of professionalism from the end of 2012.
In the run-up to the implementation of the RDR, the FSA is reporting that firms may have advisers who are not yet adequately qualified for the post RDR era. Some may not yet have even embarked on the learning and training journeys that will ensure that they comply with RDR requirements by gaining the appropriate Statement of Professional Standing (SPS). This is something that consumers should look for from advisers, when seeking help and advice with their investment and pension plans.
The FSA are now reinforcing the qualification requirement and reminding businesses and advisers about routes to gaining the SPS, including gap-fill, where existing qualifications will not satisfy the new RDR requirements.
The FSA have approved eight nationally accredited bodies who are the experts to be contacted to help identify and verify the gap-fill and qualification requirements, and to issue the SPS – including any deadline for submissions. The FSA provides information on the website about gaining RDR accreditation and continuing professional development, another key feature of adviser professionalism in the post-RDR era.
Advisers who already hold certain qualifications published in the FSA handbook must also carry out qualification gap-fill to meet the appropriate RDR requirements and the new standards, such as in ethics and investment risk. A variety of gap-fill opportunities are available, including e-learning packages, educational conferences, seminars and workshops. The FSA also reminds advisers that it is essential that any gap-fill activity carried out is capable of being independently verified by an accredited body.
At ASPL, Ivan and Adrian both (voluntarily) achieved the required level of qualification (and higher) back in 2000 and 1992 respectively, and our aim is for ASPL to become “Chartered” within 12 months, and as we are already “Certified Financial Planners”, we will then belong to a very small group of similarly qualified advisers in the UK.
...consistent good advice that I can understand.Mr D - Derbyshire