The Jersey Financial Services Commission (the JFSC) Review of Financial Advice policy is a step closer to implementation following the publication of a consultation paper on 30 September 2013. The Review of Financial Advice was conducted following the UK FSA's Retail Distribution Review. Key changes around charging commission for investment products and the qualifications that financial advisers are required to hold are expected to be implemented on 1 January 2014. Click here to view the consultation paper.
Who will be affected by RFA?
The changes will apply to persons licensed by the JFSC to conduct Class C and Class D investment business. Broadly, Class C and Class D encompass giving investment advice. It is not clear from the consultation paper whether the changes will apply to employees of non-Jersey branches of Jersey licensees if they provide investment advice in Jersey.
What changes will be made following RFA?
Qualifications
Investment employees who advise Retail Clients (which means any client that does not qualify as a Professional Client or an Elective Professional Client, each as defined below) will be required to be qualified to QCF level 4 or above, or to gap-fill their existing qualifications to bring them up to a similar standard. QCF level 4 equates to holding a qualification above A-level standard, so an HNC, HND or degree. There is no exemption for experienced investment advisers and extensions of time to obtain qualifications will be granted only in exceptional circumstances.
Commission
Generally, investment business licensees will not be able to charge commission for services to Jersey-resident Retail Clients. Trail fees may be paid, however, where a product is taken out before 31 December 2013 (provided the product is not amended after this deadline to the extent that it becomes a new product). Commission will also be payable in relation to long-term insurance contracts.
Investment business clients must be made aware of all fees and charges for services, including commissions.
Professional Clients
Understanding whether a client is, or can be treated as, a Professional Client will be key in ascertaining whether the requirement for qualifications and the prohibition on commission apply.
A Professional Client may be a Large Undertaking or a Professional Investor.
A Large Undertaking means a body in relation to which two of the following three criteria are satisfied:
- total assets of not less than £13,000,000
- net turnover of £26,000,000
- net assets of £1,300,000
A Professional Investor means:
- a government or supra-national body; or
- a person whose ordinary business or professional activity includes or it is reasonable to expect that it includes acquiring, underwriting, managing, holding or disposing of investments whether as principal or agent or the giving of advice on investments.
A licensee may treat a client as an Elective Professional Client if it undertakes an adequate assessment of the expertise, experience and knowledge of the client that gives reasonable assurance, in light of the nature of the transactions or services envisaged, that the client is capable of making his/her or its own investment decisions and understanding the risks involved. In making this assessment the licensee should have regard to:
- the frequency of the client’s dealings in the kind of investments which are the subject matter of the registered person’s advice;
- the size of the client’s portfolio (the JFSC considers it unlikely that a client with a portfolio of less then £500,000 will be a Professional Investor); and
- the client’s relevant professional expertise.
Additionally, the client must state in writing that he/she or it wishes to be treated as an Elective Professional Client. If so, the licensee will need to give the client a written warning that the licensee may be remunerated by way of product commission and the client must state in writing that they are aware of this.
How will the RFA changes be implemented?
The Review of Financial Advice changes will be implemented by amending the Codes of Practice for Investment Business.
How can I be ready for the RFA changes?
In good time before 1 January 2014, investment business licensees will need to:
- review the qualifications held by investment employees and consider whether further training and qualifications are required
- where appropriate, apply for time extensions to obtain qualifications
- establish internal policies, procedures and controls to classify existing and new clients as Retail Clients/Professional Clients and as Jersey-resident/non-Jersey resident
- consider which clients might be asked to become Elective Professional Clients
- consider whether commission can be received in relation to products taken out before 1 January 2014
- ensure that all investment business clients are made aware of all fees and charges for services, including commission
