FSA answers advisers' top questions on RDR

The Financial Services Authority (FSA) has listed - and answered - 11 of the more difficult questions posed by advisers during a recent Retail Distribution Review (RDR) roadshow.

1. Post 2012, can someone who does not have an appropriate RDR qualification carry out a fact-find or other client-related activities?

Yes, as long as the individual is not making a personal recommendation or advising on the merits of buying or selling a particular investment.

Individuals doing other roles within a firm will still need to be competent, which includes holding other appropriate qualifications for other activities described within our Training and Competence (TC) sourcebook.

At the same time, firms need to be very careful to ensure individuals are not inadvertently acting as a retail investment adviser, if they are not qualified to do so.

2. In preparing to meet the professionalism requirements, how should advisers expect to get help from accredited bodies?

Accredited bodies will help firms meet the professionalism requirements and will issue retail investment advisers with their Statement of Professional Standing (SPS).

Firms must obtain an SPS for each retail investment adviser from the end of 2012. Accredited bodies will be expected to:

1) Check that, if required to by TC sourcebook, all of the retail investment advisers who use their services hold an appropriate qualification, including verifying 100% of their gap-fill where required.

2) Verify that all of the retail investment advisers who use their services have declared that they have complied with the Statements of Principle for Approved Persons (APER) and have a code of ethics that does not conflict with APER;

3) Suggest suitable continual professional development (CPD) activity, verify that advisers have declared they have completed their CPD and carry out random, 10% CPD sample checks (the Guidance consultation body can exceed this requirement if they choose). We do not expect advisers to be doing 35 hours CPD in the 12 months before the first SPS is issued, as the new CPD rule requirement starts at the end of 2012;

4) Recognise CPD activity from a range of providers, including firms' own in- house schemes.

Accredited bodies will also be expected to alert the FSA to any issues they become aware of with individual advisers, to inform FSA supervisory activity.

We consulted on the first list of accredited bodies in June 2011, and after analysing feedback we will add the names of those we decide to accredit to the Handbook later in 2011. There will be subsequent consultations as we accredit more bodies.

3. What is structured continual professional development (CPD)?

Structured CPD is designed to achieve a defined learning outcome and, like unstructured CPD, is capable of being independently verified. To fulfil the CPD requirement, we would expect firms to:

1) Identify the learning need;

2) Identify the method to fill that learning need;

3) Be able to demonstrate that the learning need has been filled; and

4) Document the structured CPD activity.

Examples of structured CPD activities include participating in courses, seminars, lectures, conferences, workshops, web-based seminars or e-learning which require a contribution of thirty minutes or more.

Structured CPD does not have to include an examination or a test. It could include, for example, a situation where an adviser identifies a gap and a compliance consultant offers specific training to fill that gap. This could count as structured learning.

There has been discussion about whether reading is a structured activity. It is our policy intent that whilst structured CPD can include reading, we only expect it to be used in a minority of ongoing CPD activities, and it must comprise educational reading where quality reading material has been produced to meet the required learning outcome.

4. If I consider a product, but I do not feel comfortable recommending it due to its risky nature, can I still call myself independent?

A firm, after considering the market, may take the view that certain products are not suitable for their client base and not carry out a comprehensive review of the market for these products for each of their clients.

For example, firms may consider Unregulated Collective Investment Schemes (UCIS) too risky for the clients they usually deal with, and we would not expect a firm to recommend these just to prove their independence.

If the product is not suitable for a client, for example it does not match their risk profile, it should not be recommended. However, a firm should be aware that there may be some clients who these products are suitable for, and the firm should be able to recommend them if this is the case.

5. If a firm has three restricted advisers, but as a team they can advise on all retail investment products, can the firm hold itself out as independent?

No. No one in a firm that holds itself out as independent should make a personal recommendation to a retail client unless that personal recommendation is based on a comprehensive and fair analysis of all retail investment products in the market.

Clearly a restricted adviser is not able to provide a personal recommendation based on a comprehensive and fair analysis of all retail investment products in the market.