With the retail distribution review (RDR) deadline less than four months away, Financial Services Authority (FSA) head of investments intermediaries Linda Woodall is focused firmly on those struggling to meet the new rules and those looking for ways to avoid them.
Woodall (pictured) said she was encouraged by IFAs’ efforts to become RDR ready: the regulator’s last IFA survey in March revealed 71% were already level four qualified, and 59% had developed, or had plans to develop, their RDR proposition. She said she expected both those numbers to rise when the FSA conducted its next survey in October.
Focus of FSA concerns
Woodall said, however, that although IFA firms were on schedule in adopting RDR principles, many had failed to face up to the business impact of the changes.
In its most recent round of supervisory visits, the FSA had met with a ‘continual sense of firms facing difficulty’ in understanding the cost implications of adviser charging, she said. She referred to examples of advice firms continuing to include trail commission income when devising their post-RDR business models.
She said the FSA would provide advisers with practical tools to help them develop their post-RDR propositions.
‘We’re still in the communications mode and responding to our firm visits where it seems they still need help,’ she said.
Another area of concern is advisers and firms trying to sidestep the RDR rules. Woodall said the FSA would be focusing on firms that were trying to get round the commission ban and those that tried to continue advising despite not reaching the RDR requirements.
‘One of the central aims of the RDR is to address the potential of adviser remuneration to distort outcomes. We found firms that seem to be looking for ways to circumvent adviser charging rules, including things like soliciting or providing payments, which don’t look like traditional commission but are being achieved to secure certain outcomes,’ she said.
The FSA would be looking out for this in the early part of its RDR supervision, she said. It would examine how individuals in IFA firms were defining their services, with a particular focus on ensuring they did not stray into areas for which they were not authorised or attempt to portray an advised service as non-advised to sidestep the rules, she said.
‘We don’t think these things are in the spirit of the rules other advisers are working hard to achieve.’
Misconceptions about independence
Woodall has taken the lead in recent months on trying to dispel what she feels are misconceptions about the RDR’s requirements on independence, particularly on the issue of unregulated collective investment schemes (Ucis). She sought to drive home this point when the FSA announced its planned ban on the retail sale of the schemes.
While independent advisers would be required to understand Ucis, they would not be required to recommend them, she said.
‘We have to distinguish what they have to know about and what they absolutely have to recommend, based on their clients’ needs,’ she said. ‘If you want to call yourself independent, the rules are very clear.’