During the recent SAIFM conference, the FSB provided input on its views on feedback received from the industry to the 55 proposals contained in the discussion document.
There was general support for the objectives of the review. The main areas of comment were on:
- Categories of advisers
- Product supplier accountability
- Implications for outsourcing and cross-ownership arrangements
- Investment product remuneration
- Investment platform models and remuneration
- Commission structure for life insurance risk products
- Concerns about scale of change and the need to phase-in to avoid disruption
- Questions about how RDR will change distribution landscape and whether all changes will result in better customer outcomes
This article will focus on one of these aspects, while the rest will be discussed in due course.
Categories of advisers
Originally, it was envisaged that there would be three types of advisers: tied, multi-tied and independent.
One of the suggestions was to differentiate between descriptions required for purposes of regulation versus what a client needs to know about the status of the adviser.
A further argument was that the key measure of independence should be freedom from product supplier influence, rather than trying to specify a minimum range of products or product suppliers. The original proposal contained a comprehensive list of prescriptions, including:
- being subject to production or sales targets in relation to products of the product supplier
- a direct or indirect ownership or other financial interest in the adviser by the product supplier
- a relationship which in any way imposes restrictions on the adviser’s ability to provide advice or earn remuneration in respect of any other product supplier’s products
- a relationship which enables the adviser to, directly or indirectly, earn more remuneration or other financial interest from a product supplier
- The relationship is such that the adviser is in any other way directly or indirectly influenced by the product supplier – or could be seen to be influenced – to recommend the products of the product supplier concerned.
Proposal DD, “Product supplier responsibility for IFAs” provided for conduct standards which will require product suppliers to take responsibility for aspects of the conduct of IFAs who provide advice on their products:
- Where the product supplier pays any form of commission, or facilitates the payment of any advice fee to an IFA, the product supplier will be required to ensure that the adviser meets the same levels of generic and product specific product training as applicable in respect of a multi-tied adviser, failing which the product supplier may not enter into such commission or advice fee facilitation arrangement.
- Identifying specific types of activities that pose a high risk of poor customer outcomes and putting reasonable risk mitigation measures in place. Possible examples would be monitoring sales of products with unusually large recurring contributions, or sales of long-term products to elderly customers, or sales outside of the relevant product’s target market, to identify potential mis-selling risks.
- Where an advice fee facilitation arrangement is entered into with the IFA, monitoring adherence by the IFA to the fee guidelines for advice (proposal II)
- Taking reasonable steps to monitor and assist in the resolution of customer complaints relating to the IFA’s services, and take appropriate action to mitigate unfair customer outcomes identified.
The most recent ASISA Dispatch added the following update:
The FSB’s final two RDR workshops were held during September: Workstream 2 –Investments and Workstream 6 – Low Income Market.
The FSB will now consider feedback received and may request more information or detail from the relevant workstreams. The aim is to issue a further discussion document together with a “RDR Roadmap” by the end of this year.
On Monday, we look at some of the other aspects discussed in the SAIFM presentation.