Retail Distribution Review

Written evidence submitted by Standard Life

1. Standard Life is a leading provider of long term savings and investments to over 6 million customers worldwide.

The Standard Life group operates across UK, Canadian and International retail markets; with corporate pensions and benefits businesses in the UK and Canada; Standard Life Investments, a global investment manager, which manages assets of over £154bn; and its Chinese and Indian Joint Venture businesses. At the end of September 2010 the Group had total assets under administration of £192bn.

Executive Summary

2. Standard Life fully supports the Retail Distribution Review (RDR). Alongside initiatives such as Treating Customers Fairly (TCF), financial capability and simplification, it presents an unprecedented opportunity to transform financial services distribution in the UK, generating greater consumer trust in financial advice and engaging more people in long term saving. It has a vital role to play in helping to close the UK’s savings gap, and delivering the social benefits this represents.

3. The RDR proposals for a more transparent and fairer charging system are welcome and will:

· Produce better outcome s for consumers by ensuring that providers compete on the basis of best service provision and value-for-money, as opposed to commission;

· Clarify what consumers are paying for and how much ; and

· Empower consumers to negotia te charges for financial advice.

4. A better qualifications framework for advisers will increase consumer confidence in the industry and ultimately lead to greater use of professional, financial advice by consumers . We recognise that t he new rules around charging and qualifications pose significant challenges for advisers and Standard Life will continue to invest in technology and a range of support services to help advisers meet these challenges.

5. Standard Life has limited, albeit important, concerns in relation to RDR. Action must be taken to mitigate potential risks to consumer access to financial advice and to improve consistency and clarity. Our concerns, and recommendations for how to address them, are included below.

6. A pragmatic approach to offering simplified advice for customers who have less complex needs must be confirmed soon. Simplified advice can make a major contribution to addressing the risk that some consumer groups may be excluded from accessing financial advice as a result of the RDR.

7. Sustained investment by private and public sectors in financial literacy is vital to ensure consumers engage with financial products and seek financial advice where it is the ir best option. This investment, coupled with efforts to ensure that overall access to advice is protected, or enhanced, is crucial to help address the UK savings gap.

8. The proposal in the recent FSA Platforms paper to ban cash rebates into customer accounts is inconsistent with the wider approach of the RDR and will increase complexity and reduce transparency for customers. We recommend the cash rebates option is retained and the FSA’s concerns are instead addressed through charging and disclosure requirement s.

9. Care must be taken to ensure the RDR complements emerging EU legislation such as PRIPs (Packaged Retail Investment Products) and MiFID (Markets in Financial Instruments Directive). This is important to minimise costs for the industry and complexity for customers.

10. Standard Life is committed to work ing with the Government, the FSA and others in the industry through the ABI to progress these issues and support the Retail Distribution Review in achieving its intended , and laudable , outcomes for consumers.

A transparent and fairer charging system

Removal of commission

11. Standard Life supports the proposed ban on commission . This will ensure providers compete on the basis of best service provision and value-for-money , delivering a better outcome for consumers . Adviser charging will clarify what consumers are paying for and how much and empower them to negotiate charges for financial advice.

12. T his will generate enhanced consumer trust in financial advice, which has been eroded in recent years. Rebuilding consumer trust is vital to achieving the fundamental societal objective of more people saving more for the long term.

13. T he move to adviser charging does involve risks. C onsumers may be discouraged from seeking financial advice as a result of : (i) restricted choice in how they pay for services, (ii) the perceived greater cost of advice and/or (iii) having to pay more for advice than previously.

14. O ver time, increased consumer confidence in the industry generated by customer agreed remuneration should increase demand for financial advice . ABI research supports this view [1] . However, action must be taken to mitigate the risks outlined and ensure consumers continue to access financial advice where appropriate.

Corporate pensions

15. G reater clarity is needed on remuneration rules for corporate pensions. The consultancy charging model is still evolving, and we need to fully understand who is paying, who is really getting advice (individuals or employers) and how this is communicated to individuals.

16. T here are still some anomalies between contract (FSA) and trust-based (DWP) regulations. As with Pensions Reform and Auto Enrolment, consideration should be given to how RDR will operate across the different pension regimes, and what, if any, rationalisation is needed. Some proposals have already been made around commission and fees, but this has yet to be finalised. Guidance is expected from the FSA later this year , which must address the risk of ambiguit y and provide clear guidelines t o ensure consumers are treated consistent ly.

Financial education

17. Increased financial education that enable s consumers to better understand and engage with financial products and, where appropriate, encourage s them to seek financial advice, is vital to the success of the RDR. S ustained investment in financial literacy is necessary to achieve the goal of more people saving more.

18. T he new Consumer Financial Education Body (CFEB) ha s a central role to play in improving financial literacy . We would welcome greater clarity from the G overnment and the FSA as to how th is body will actively support the objectives of the RDR. T he industry must also play its part, and Standard Life will continue to support this agenda through initiatives including the Standard Life Charitable Trust and third party bodies such as the Life Academy .

19. More generally, it is important that the FSA considers how best to communicate the forthcoming RDR changes to consumers so that they fully understand the benefits. To date, there has been very little discussion of the RDR outside of the industry.

Improved disclosure

20. Standard Life supports efforts to introduce improved disclosure as an important elemen t of increasing transparency and clarity for consumers. For this to benefit consumers in practice , what providers send customers has to be simple, meaningful and supported by communications that inform and educate them. C ustomers tell us that that they do not currently value much of the informa tion we are required to send them. The industry must work clos ely with the FSA to ensure the RDR produces changes to disclosure rules that genuinely benefit consumers and that operate effectively alongside planned EU legislation that will also influence disclosure, e.g. the current PRIPs (Packaged Retail Investment Products) consultation.

Platforms and cash rebates

21. Overall, we're supportive of the FSA’s recent platforms paper:

· We welcome the proposals on re-registration

· We are pleased that the FSA has recognised that clients' needs can be satisfied by an adviser firm operating a single platform for the majority of investment business, and

· We welcome additional scrutiny on capital adequacy for platform providers.

We believe these proposals will deliver real consumer benefit.

22. Standard Life is concerned that the FSA’s proposal to ban cash rebates on platforms is inconsistent with the overall objectives of the RDR and the desire to increase transparency for consumers. Paying rebates into cash accounts is a transparent process well understood by consumers – both cash payments and account movements are disclosed. Mandat ing product rebates instead , as advocated by the FSA , will prove more complex for consumers. We recommend that the current cash rebates option is retained and the FSA’s concerns are instead addressed through charging and disclosure requirement s.

A b etter qualification framework for advisers

23. Standard Life supports the proposed incr ease in adviser qualifications. Over time, we hope that advisers will obtain a status similar to other professions , such as lawyers and accountants, and will achieve the recognition they deserve for the valuabl e services that they provide . This will lead to an increase in demand for their services over time.

24. W e know through our close relationships with intermediaries that many advisers have proactively taken steps in recent years to adapt their business model s and increase their level of professionalism . However, we recognise that the RDR requirements still pose significant challenges for some advisers.

25. Given the se challenges for advisers, who are invest ing in qualifications and business model change s at the same time as manag ing their businesses as usual, Standard Life is providing support in the run-up to RDR implementation through investment in :
- technology to ensure advisers have the right propositions to support their businesses and their customers

- our support services subsidiary, threesixty , and our account managers to provide consultancy services such as compliance and business model advice
- new client propositions in the retirement and investment fields
- marketing support so advisers a re better placed to reach out to new and existing customers

26. Our investment in these key areas will help advisers to make the transition within the planned timescales and enable them to make the most of opportunities to deliver the best possible services to customers.

Greater clarity around the type of advice being offered

‘Independent’ and ‘restricted’ advice

27. Providing clear information to consumers regarding the advice and services offered by an adviser is an i ndispensable element of increasing transparency and improving consumer confidence in the industry.

28. It is important that consumers are given information that goes beyond simple high level labels such as ‘independent’ and ‘restricted’. While Standard Life understands the rationale for these labels, we think there needs to be some flexibility within the ‘restricted’ category to capture the clear difference between advisers that advise only on their own products (i.e. tied) and those that essentially advise in a whole of market manner but on a limited number of products. The risk with the current labels is that consumers are discouraged from seeking advice from a ‘restricted’ adviser, when in reality this may be beneficial for consumers without complex needs.

Simplified advice

29. Another area that is not yet confirmed is simplified advice. F ull financial advice will continue to play an important role in a post-RDR environment, but it may not be an appropriate or cost-effective option for many consumers. Our research [2] tells us that a large number of customers want the option to select their investments with limited guidance rather than through a full, independent advice service. Confirming a s implified advice process will help to ensure that such consumers still have access to advice and long term savings.

30. Our proposal to the FSA for a simplified advice model that will work in practice, suggests that i t should not necessarily be about delivering simple products only , but about using a simplified process to deliver advice, primarily online , in line with customers ’ needs. In other words, the products recommended through a simple advice model may be simple products, but could also include simplified versions of products that address more complex needs .

31. Given the substantial investment needed to develop a technology-based simplified advice solution, the industry needs clarity soon . T o attract customers who may be unable and/or unwilling to pay for full intermediated advice, simplified advice needs to help providers offer flexibility to customers around how they pay. T he industry want s to understand what charging models will be acceptable under a simplified advice regime . We feel that the same qualifications should not be required to offer a simplified advice process.

32. Standard Life will invest in our direct to customer business to ensure we can satisfy our duty of care to customers who may become ‘orphaned’ by intermediaries who change their business models, or who do not wish to pay for a full , independent advice service .

January 2011