Summary
The FSA's Retail Distribution Review (RDR) is a major
reform of the regulation of retail investment advice and is due
to come into force on 1 January 2013. It would in particular require
advisers to have qualifications equivalent to a Certificate in
Higher Education in order to practise, and remove the system of
commission paid to advisers and replace it with Consumer Agreed
Remuneration.
Some parts of the financial services advice market
are not working properly for consumers. But some elements of the
FSA's evidence have appeared weak to the Committee, and the FSA
itself concedes that its proposals would cause large numbers of
Independent Financial Advisers (IFAs) to leave the market. This
would reduce competition and choice for consumers, at a time when
the savings rate is already too low. A delay of 12 months in the
implementation of the RDR in order to allow advisers to satisfy
the requirements of the RDR would be likely to increase the number
of firms and advisers making the transition to the new system,
while recognising the fact that many advisers have already complied
with the RDR's requirements.
A higher level of qualification for advisers can
help build a stronger professional ethos among advisers and reflect
the considerable of responsibility advisers have for the financial
welfare of their clients. By asking for a delay of a year to the
introduction of the RDR, we hope that advisers will take the opportunity
to meet the new qualification requirements. We also recommend
the FSA use other means, such as providing for flexibility for
advisers on a case by case basis, and allowing supervision of
non-qualified advisers.
Customers of financial advisers have tended to see
financial advice as 'free' under a commission-based system. The
RDR will mean that customers will clearly see what they are being
charged for advice. This is a healthy development but will involve
a significant change in culture for the industry.
The FSA is to be replaced by the proposed Financial
Conduct Authority (FCA). The FCA will have different objectives
to the FSA, and the Treasury should state whether it is content
that the RDR as currently constituted would be consistent with
the objectives, as it currently sees them, of the FCA. The creation
of the FCA also provides an opportunity to examine the accountability
mechanisms that will apply under the new system of financial regulation.
We will therefore instigate an inquiry to form a view on whether
they are adequate.
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