Lots of RDR headlines…so what actually happened?

How many RDR-related emails have you received? A lot we’re guessing. So, here’s a quick-fire definitive guide.

The FSA published three papers. The first and most important - because it represents the FSA's final rules - concerns adviser charging and service labelling post 2012.

The second concerned the role of platforms in the new model advice world, but this was a discussion paper, the stage before consultation. Still, this was the paper that generated the most response.

The third, meanwhile, was a short consultation paper (well, short for the FSA at 32 pages) concerning the sale of pure protection product by retail investment firms.

We'll deal with each paper one at a time and as briefly as we can. Then, like us, you can get back to the Coffee Lounge.

PAPER ONE - Distribution of retail investments: Delivering the RDR - feedback to CP09/18 and final rules

Nothing much changed here, but these are now the final rules. There is no going back (unless you are of the school of thought a change of Government will bring about the end of the FSA and, in turn, the RDR. It isn't going to happen).

So here's what you are going to have to do from 1 Jan 2013:

Service labelling

• If you want to be called independent you must base recommendations on a fair and comprehensive analysis of the market. Advice must be unbiased and unrestricted.
• Restricted advice: when a firm can only give advice on certain parts of the market, such as its own range of products, which must be made clear to the customer at the outset.

Disclosure requirement

• In last June's consultation paper, the FSA mulled introducing a "mandated" set of words restricted advisers were going to have to use when describing their services to clients. No more.
• Restricted advisers must simply disclose they are just that: restricted, and only able to offer advice on a limited part of the market. The rest is up to them.

Adviser charging

• Advisers should be paid by charges set out up-front and agreed with their clients, rather than by commissions set by product providers.
• Charges should reflect the services being provided to the client, not the particular product provider, or product, being recommended.
• Charges should not vary "inappropriately" according to the product provider, or the product, a firm recommends.
• Firms must communicate both their overall charging structures, at the outset, and the specific amounts an individual is charged.
• Firms must provide their clients with the total adviser charge payable in cash terms as soon as this is practicable and make a record of the total charge.
• The FSA is not seeking to prescribe the basis on which a firm might charge for its services - a firm, therefore, might charge a fixed fee, hourly rate, a percentage of funds invested or a mix.
• Ongoing adviser charges should only be levied where a consumer is paying for an ongoing service, such as a regular review of the performance of their investments.
  The exception will be where a client buys an investment to which they will contribute over time.
• There will be a ban on receiving commission and rebating it to the consumer. The FSA says it does not believe the potential for product or provider bias "can be properly dealt with" while providers continue to set commissions receivable by adviser firms.
• The rules come into force on 1 January 2013 but firms can adopt adviser charging at any time, although permission to renegotiate commission on past business is unlikely.
• Firms do not have to revisit business conducted before the deadline and can continue to receive trail on products sold beforehand.

Full paper available HERE.

PAPER TWO - Platforms: delivering the RDR and other issues for discussion

This paper has been eagerly-anticipated ever since the FSA first mentioned, last June, it would look at the platform market. Today's document is a discussion paper. It proposes:

• Changes to platforms to bring them in line with the RDR and facilitate adviser charging.
• Improving consumers' ability to transfer assets from one platform to another.
• Setting appropriate capital requirements for platforms to ensure an orderly and efficient winding down.
• Consumers are not receiving enough information about authorised funds when purchasing through a platform.

Full paper available HERE.

PAPER THREE - Pure protection sales by retail investment firms: remuneration transparency and the COBS/ICOBS election

This is a consultation paper. The period for consultation responses closes on 28 June 2010. It proposes:

• Retail investment firms must explain how they are remunerated for pure protection sales.
• They must disclose the amount of commission received should the customer go ahead with a protection purchase.
• When selling investments and protection together, the adviser must make it clear the investment advice charge is separate from a pure protection product's commission.
• COBS rules will be amended to allow pure protection sales to continue without applying the adviser charging rules.

Full paper available HERE.

Now then, back to the Coffee Lounge. It is Friday after all.