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Retail Distribution Review
The Retail Distribution Review (RDR) was set up with the aim to improve clarity for people who are looking to invest, raise the professional standards of advisers and reduce the conflict of interest which is found in remuneration for adviser services.
The key proposals of the RDR are:
Raise professional standards through requiring all investment advisers to be qualified to a new, higher level, introducing a code of ethics, enhance standards for continuing professional development and introduce a new standard of professional standing. These new standards will be maintained and enforced through the creation of a Professional Standards Board, which will be implemented by making greater use of FSA’s existing powers in the Financial Services and Markets Act (2000).
Gap fill template [PDF]
Provide greater clarity for consumers through distinguishing between 'independent advice' and 'restricted advice'(non-independent advice) services; and ensuring that firms describing their advice as independent consider all products and providers that could meet a customer’s needs (so consider all relevant options), free from any restrictions or bias, when making recommendations.
Tackle the potential for adviser remuneration (commission) to bias advice by requiring advisers to set their own charges in agreement with their clients ('adviser charging') before they identify suitable products for the customer; preventing product providers from offering pre-determined levels of commission and advisers recommending products which automatically pay them commission; and allowing the cost of advice to be taken from the product .
Factsheet - Adviser charging [PDF]
We have published our policy statement (PS11/9) which implements changes to our regulation of platform services. Amongst other things this will support the RDR objective of reducing bias in the advised sales process.
We have finalised rules in the following areas:
- requiring adviser firms using platforms to take steps to ensure that their choice of platform does not bias their selection of products for customers;
- requiring platform firms to present their products in an unbiased manner;
- requiring platforms to meet the same standards as product providers when they facilitate adviser charging;
- requiring platforms to disclose any fees or commission offered to them by third parties in advance of providing a service to customers;
- requiring authorised nominee companies, including platforms, which hold products on behalf of consumers to transfer these investments to another nominee, when requested to do so, within a reasonable time; and
- requiring platforms and other nominees to pass on fund information to the end investor. They will also be required to inform end investors where there is a change event that requires an extraordinary resolution at which unitholders must vote to accept the alteration to the fund.
The policy statement also notes that we have decided in principle that it would be desirable to ban both cash rebates to consumers and payments from product providers to platforms. We have not made any rules to do either of these things, and we plan to undertake further analytical work to determine when would be an appropriate time to implement these changes. We will announce the details of this work in due course.
Group Personal Pensions (GPP)
We are removing commission bias from the group personal pension market - recommendations made by advisers will not be influenced by product providers.
Our rules will also make adviser charging more transparent - advisers will have to fully disclose how they will be remunerated and employers will negotiate and agree the cost of the adviser’s services upfront. We believe that employers would be more engaged with the level of adviser remuneration if they were given transparent information on the overall amount an adviser will receive on the GPP as a whole.
We do not believe that applying the adviser charging regime to pure protection advice will enable us to target the problems we currently see in that market. We have published final rules in CP10/13 which mean that:
- Where pure protection sales and advice are associated with investment advice, firms will have to explain how they are remunerated and disclose the amount of commission or commission equivalent received.
- Firms will be required to make a judgement about whether the pure protection transaction is ‘associated’ with investment advice. We have added guidance to help firms make this judgement.
- Firms that sell pure protection products under the Conduct of Business sourcebook (COBS), rather than the Insurance Conduct of Business sourcebook (ICOBS), can continue to do so after the RDR is implemented.
Policy Statement 10/13 – Pure protection sales by retail investment firms: remuneration transparency and the COBS/ICOBS election.
In Policy Statement (PS) 11/13 we have addressed data collection issues that arise from the Retail Distribution Review (RDR) rules on Adviser Charging and Professionalism. We set out our proposals for:
- new requirements for collection of data under the Retail Mediation Activities Return, covering Adviser Charging revenue, payment and client numbers, and charging structure, from all firms that provide advice on retail investment products;
- requirements for firms that provide services on group personal pension schemes (GPPs) to provide data on Consultancy Charging and fees revenue, payment methods, employer client numbers and charging structures; and
- new complaints data at individual adviser level, for use in combination with other risk information as an indicator of behaviour that could imply potential consumer detriment.