This is the final article based on a presentation on the Retail Distribution Review by the FSB at the Discovery Financial Planning Summit on 19 May 2015.
Implications for financial advisers
- We will expect financial advisers to decide on whether they want to operate on an IFA, multi-tied or tied basis – and then very clearly disclose the nature, scope and cost of their services in all communications with their customers.
- We expect that this will mean that many financial advisers will have to take this opportunity to review their business models – and consider the extent to which it aligns with the interests of customers.
- We believe that the core value proposition of financial advisers is the delivery of professional advice and service – and that the proposed reforms provide the framework and opportunity to build a sustainable financial advice business by demonstrating expertise and value-adding up-front and ongoing advice and service to customers.
- In essence, we expect to see an alignment of remuneration models with client interests, and away from conflicted remuneration models whereby business is directed to the product supplier who is willing to pay the highest incentives.
- Lastly, the provision of information will become an increasingly important responsibility of intermediaries. Financial advisers will be expected to develop the necessary systems and capacity to provide product suppliers with key information to monitor TCF outcomes.
Implications for Product Suppliers
- RDR – and our new approach to market conduct regulation more generally – will also have important implications for product suppliers.
- TCF will see a rebalancing of responsibilities. Until now there has been a heavy emphasis on the point-of-sale and advice stage of the product life cycle – through FAIS. This will now be balanced by an increased scrutiny of the way firms develop products; ensuring that products offer value to customers and meet their reasonable expectations.
- Also, product suppliers will have primary responsibility for ensuring that their products are marketed and distributed in a way that does not undermine fair outcomes – including much more rigorous oversight over their chosen distribution channel. It’s been far too easy in the past for product providers to blame poor outcomes on intermediaries – it must now be clear that delivery of fair outcomes is a shared responsibility.
- The extent of product supplier responsibility will be tied to the level of influence over the chosen distribution channel, but will include, to varying degrees, the following responsibilities:
- Checking that advisers have adequate product knowledge
- Reasonable pre-contracting assessment of TCF delivery capacity
- Reasonable monitoring of TCF indicators at adviser level, plus appropriate response to mitigate identified risks
- Identifying high risk activities, with risk mitigation controls in place
- Complaints management and mitigation processes
Monitoring adherence to fee guidelines, where fees are facilitated