The Retail Distribution Review expresses a popular view held by long-suffering financial advisors:
“The current regulatory framework gives rise to imbalances in the responsibility of product suppliers and intermediaries for fair customer outcomes, by placing rigorous obligations on intermediaries (particularly in relation to advice), but significantly less responsibility on product suppliers to be accountable for customer outcomes achieved through their chosen distribution channel, despite the fact that product suppliers have a clear interest in effective and appropriate distribution of their products to their customers.”
“Going forward, the regulatory framework will aim to rebalance these responsibilities…”
For purposes of these proposals, references to product suppliers and products apply equally to investment managers and their investment portfolios in relation to which advice may be provided.
The market conduct regulator will monitor that product suppliers are effectively exercising these oversight responsibilities.
Proposal BB includes the following provisions for tied advisers
A product supplier will be fully responsible for the advice provided by advisers with whom it has a tied relationship, as well for ensuring the tied adviser’s compliance with all relevant regulatory provisions. 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 supplier’s responsibility for multi-tied advisers
Conduct standards will require product suppliers to take responsibility for aspects of the conduct of multi-tied advisers with whom they contract:
- Advisers are adequately equipped to provide appropriate information and advice on the product supplier’s products.
- Specifically, product suppliers will be responsible for ensuring that the adviser meets specific levels of generic and product specific product training,
- Satisfy itself that the adviser will be in a position to deliver fair customer outcomes and provide advice suitable to the needs of the type of customer base and product types concerned, including that the adviser is fit and proper, has adequate governance and control measures in place to deliver TCF outcomes and that there is no cause for concern regarding the adviser’s commitment to a culture of fair customer treatment.
- Reasonably monitoring of appropriate fair treatment indicators, at adviser level, including (where applicable) the type and volume of: Product sales, after sale product changes, product terminations, transfers, replacements, claims, and customer complaints; and taking appropriate action to address or mitigate identified poor customer outcomes.
- 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.
- Having processes in place to monitor and resolve customer complaints relating to the multi-tied adviser’s services, and take appropriate action to mitigate unfair customer outcomes identified.
- Monitoring adherence by advisers to the fee guidelines for advice.
For purposes of this proposal, references to product suppliers and products apply equally to investment managers and their investment portfolios in relation to which advice may be provided.
Proposal DD addresses product supplier responsibility for Independent Financial Advisers
Conduct standards will require product suppliers to take responsibility for aspects of the conduct of IFA’s who provide advice on their products:
- Ensuring 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.
- Where an advice fee facilitation arrangement is entered into with the IFA, monitoring adherence by the IFA to the fee guidelines for advice
- 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.