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Product supplier responsibility for advisers

Fais Circular 6 of 2013 announced the postponement of the Level 2 Regulatory Examination until further notice to allow the FSB to amend the qualifying criteria and investigate alternative delivery models in consultation with all relevant stakeholders.

A recent presentation on the Retail Distribution Review (RDR) proposals, gave some idea of what we may expect. Please just bear in mind that these are still proposals, not yet fact.

The slide below outlines the possible role of product providers in ensuring that product knowledge, which was the main thrust of the level 2 RE, is properly addressed:


As stated in the slide, the level of product provider responsibility will be proportionate to the degree of influence it has on the adviser.

Proposal BB in the RDR discussion document concerns tied agents and expands on the above as follows:

The regulatory framework will impose similar obligations on a product supplier in this regard to those currently imposed through the FAIS Act on an authorised FSP in respect of its representatives. New conduct standards will be set to confirm the product supplier’s responsibilities in this regard, including more explicit responsibilities in relation to ensuring that the tied adviser has the requisite generic and specific product knowledge, and in relation to monitoring the adviser’s delivery of TCF outcomes.

Proposal CC addresses the product provider’s obligations regarding multi-tied advisers:

Specifically, product suppliers will be responsible for ensuring that the adviser meets specific levels of generic and product specific product training, failing which the product supplier may not enter into any form of arrangement with the adviser in relation to its products (including paying commission, paying any form of outsource or binder fee, or facilitating payment of advice fees). Such product specific training may either be provided by the product supplier itself, or through an appropriate service provider, subject to strict standards. Product suppliers should not impose unreasonable barriers or conditions (for example minimum production levels) related to the provision of training. This will result in fit and proper requirements being rationalised, particularly the removal of RE2 exam requirements and their replacement with a new model requiring both generic training in relation to product types and classes, and specific training on a product supplier’s specific product structures. Further consultation will take place regarding details of this proposed new product knowledge framework.

Proposal DD concerns independent advisers and reads:

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.

It appears likely that the training referred to above will not only include generic and specific product information, as indicated, but may be expanded to include continuous professional development.

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