With less than 9 months until the implementation date of the Retail Distribution Review (RDR), on 31 December 2012, it is not surprising that the FSA is making a visibly concerted effort to really drive home the message that firms must be prepared for the changes that lie ahead. In a recent speech by the FSA's Linda Woodall at the FT Intermediary Forum, the regulator acknowledged that firms have already undertaken a lot of the work necessary to ensure compliance with the RDR rules, but "for many firms there is still a lot to do".
The RDR is by no means a new concept, having been discussed within the financial services sector since 2006. Despite this, however, it seems that a number of firms have left much of their final preparations to the last minute. The FSA has kept the implementation of the RDR under close review, using surveys to chart the progress of firms as they get ready for the higher professional standards and new adviser charging rules.
Overall, it seems that good progress is being made in the run up to 2013. In her speech, Woodall provided statistics to illustrate that 71% of advisers now hold the appropriate Level 4 qualification, as compared to just 50% of advisers this time last year. In addition, 59% of firms are already operating an adviser charging model. However, there are a number of areas which require further attention.
The FSA's surveys have revealed that only 39% of those advisers that need to undertake additional, structured continued professional development (CPD) in order to fill any gaps in their knowledge relating to the new RDR professionalism requirements, have actually done so.
Woodall encouraged those advisers affected by this requirement to "press on" and engage more with this process. The FSA has approved eight accredited bodies, which will be relied upon to assist in raising professional standards by helping advisers to obtain and maintain the required qualifications. These accredited bodies will also issue 'Statements of Professional Standing' to advisers, required to provide independent verification that the adviser has met the RDR standards.
For those advisers who are turned off by the prospect of sitting written examinations, there are alternatives available. Although, on closer inspection, they may not appear any more desirable. The FSA is operating Alternative Assessment Qualification options, which involve assessment days centred on case studies, followed by a technical interview with an independent assessor. A successful applicant must also provide evidence of any examinations s/he already holds and details of relevant experience which demonstrates their knowledge.
Woodall commented that there are a large number of firms who have not yet put an adviser charging structure in place. She said, "Implementing a suitable charging model has the potential to be the most challenging element of the RDR. Putting off this work represents a huge risk, both to your business models and your clients, so if you haven't started, do it now."
The FSA has not prescribed a format to follow when creating a charging structure; suffice to say it must be concise and clear, using plain, easily understandable language. In fact, the FSA has made it clear that it wants firms to take responsibility for their own charging structures. Therefore, it is arguably all the more important that firms take advantage of the time left before the RDR implementation date to establish and test a clear adviser charging model.
Keeping consumers updated
69% of firms have told, or have started to tell, their clients about the changes that will stem from the RDR. Woodall explained that the FSA is assisting advisers to spread the word about the benefits of the RDR and how the higher standards will be advantageous to consumers.
The FSA has split consumers into two categories; those that are 'engaged' and those that are 'non-engaged'. The 'engaged' category typically represents approximately 17% of the UK population, categorised as individuals who have a basic understanding of their finances and already seek financial advice. The 'non-engaged' category encompasses the rest of the population, who generally only seek investment advice in relation to certain life events, for example receiving inheritance.
Woodall recognised the importance of the support of the FSA for advisers as they try to explain the changes being implemented by the RDR. For that reason, the regulator has prepared a leaflet that can be used to help explain to 'engaged' consumers what changes are being made to the provision of retail investment advice and why. A different approach has been taken with regard to the 'non-engaged' consumers, as the FSA is of the view that the message is best delivered by the consumer groups and organisations, rather than advisers or the regulator itself.
"In the coming months the feedback we receive from surveys, events and visits will identify areas where we can provide further guidance to assist firms with their preparations for the RDR this year", said Woodall. "We also plan to identify examples of best practice and where processes have fallen short, and share these with the industry."
The FSA will continue with its surveys and implementation surgeries, for both the larger and smaller firms. It will conduct supervision visits with some of the smaller firms to monitor their progress and will meet with the larger firms that have more complicated business models to make sure they will be RDR-ready in time. The regulator will also hold briefings that address the specific implementation risks affecting certain types of firms.
"Change can be unsettling," noted Woodall, "and adds even more pressure. But both the RDR and regulatory reform give us all huge opportunities to do things better. The benefit will be a stronger marketplace for retail investment advice and that must be worthwhile."