Where the TSC disagreed (and agreed) with the FSA

The Treasury Select Committee (TSC) may have lost the battle with the Financial Services Authority (FSA) over the RDR, but in the long war of financial services regulation it will seek to have its recommendations written into the successor Financial Conduct Authority's rule book.

The TSC's demands and recommedations............

A future Level 6 standard?

A full study undertaken by the FSA (or its successor) before any move to Level 6, using a large sample of UK based advisers.

Given the significant difference between Level 4 and Level 6, there should to be a far longer lead time to implementation, with a wide-range of potential routes available.

But would Level 6 apply to existing advisers, or new market entrants only?

Level playing field?

The FSA (or its successor the FCA) report to the TSC after one year, and then yearly, on the impact of the RDR on vertically integrated firms' remuneration structures, indicating breaches that have been found and dealt with. 

Trail commission?

The FSA should analyse the impact of the removal of trail as a measure of a firm's value on the market for advice, and especially on the small-firm IFA market.

VAT?

HMRC, with the FSA if necessary, report to the TSC as soon as possible with clear guidance on when VAT will be payable for financial advice under the RDR, why it has not been payable in the past, any expected additional revenues from the change, and whether further reform of VAT rules in the area will be needed.

The FSA to report whether any changes will have an impact on the provision of advice, and whether the RDR will cause an unfair tax advantage between different advice models.

Labelling?

The FSA and other relevant bodies should provide significant resources to explaining to the public the change, and in particular that ‘restricted' may mean restricted by product, or by firm.

Simplified advice?

The FSA (and its successor the FCA) report to the TSC both on progress towards a simplified advice regime and, when such a regime is put in place, provide updates on how implementation has affected consumer outcomes.

Advice gap?

Regular reports on the impact of the RDR on adviser levels, and savings through independent financial advice, should be compiled by the FSA and its successor and provided to the TSC.

HNW advice?

The TSC noted some firms' concerns that the RDR may lead High Net Worth (HNW) clients to look outside London (and the RDR rules) for advice.

It wants the FSA "as a matter of urgency" to review this and report back on the scale of the issue, and whether the RDR could be changed to mitigate those concerns.

The FSA should examines how to allow HNWs, as determined by the FSA, the opportunity to opt out of the requirements of the RDR and most or all protections that retail customers receive.

Longstop?

The TSC will ask the Committee on the Draft Financial Services Bill, which would create the FCA, to consider whether there is a compelling case for a long-stop, if clearly in the interest of consumers.

And where the TSC and the FSA found common ground..........

Cost of advice

Some consumers will have seen advice as ‘free' beforehand so the setting of a price will lead to a reduction in the consumption of advice.

But the rise in the price may lead to consumers better scrutinising the advice they are paying for, and who is providing it. Given the past mis-selling episodes of the industry, this must be a welcome development.

Factoring

The TSC agreed that allowing factoring by product providers may lead to a potential bias in the market at odds with the overall transparency aims of the RDR.

Churn

The FSA, and its successor, should use all available tools to search either for pre-implementation churn, or post-implementation holding of clients, where that is not the best solution for the client. It expects to see the results of any regulatory findings.