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The ultimate aim of the RDR could be undermined by the FSA asking providers to monitor the activities of advisers, leading industry figures say.
They argue a provider role in adviser supervision could encourage bias in the industry; a situation the RDR is designed to stamp out.
A raft of papers from the regulator suggest providers should take part in the monitoring of advisers' charges, as well as other aspects of the business they submit.
This includes section 4.20 in the latest RDR consultation paper, which proposes providers monitor adviser charging and be granted the power to decline, or alert the FSA, in cases of "extreme" charging.
The Association of IFAs (AIFA) has already raised its objections with the FSA, and several firms have told Professional Adviser they also oppose the idea.
Richard Howells, intermediary sales director at Zurich, says the proposals are contradictory and put the ideals of the RDR at risk.
"If the FSA goes ahead with this, we could end up with a situation where some providers are stricter than others at checking adviser business, and that could lead to unscrupulous IFAs showing a preference for their products", he says.
"If this happens, we could end up with much the same situation we have now, where provider bias exists as a result of their influence on the remuneration process.
An FSA review of small SIPP providers in September suggested administrators review the type and size of investments they receive from advisers, identify "anomalous" cases and even request copies of suitability reports.
But Billy Mackay, marketing director at AJ Bell, says the FSA is going too far by asking providers to take on responsibilities outside their remit.
"We have always monitored investments to ensure they match the profile of our expected customers; we might, for example, question a large commercial property purchase by a customer who was not particularly well off," he says.
"But saying we have to ask advisers for suitability reports is a step too far, and it will never happen. Most advisers would not give us these reports anyway, and what would we do with them?"
Critics says the FSA's proposals could also cause considerable detriment to consumers as the checking of adviser charges would create costs, which would then be passed on.
Additionally, they say they might prevent advisers from structuring special deals for clients, such as arranging nine products for free and charging 10% on a tenth, to pay for it all. They argue the 10% charge may go above a provider's decency limits and be rejected, despite being approved by the client.
Suffolk Life's John Moret says the FSA's suggestions are blurring the lines of responsibility for advice.
"Taken to its logical conclusion, these recommendations would appear to imply that a SIPP operator is expected to determine whether the advice given by an adviser is suitable," he says.
"This seems to be a significant shift in responsibilities which would potentially put a SIPP operator in a difficult, if not impossible, position - not least because a SIPP operator is rarely in possession of all the facts."
Andrew Strange, policy director at AIFA, says: "We do not think decency limits are appropriate. Providers may have some management information but they do not have regular contact with a client and are unlikely to understand all of their needs."
The FSA is due to publish responses to its latest RDR consultation in November, with further details on the future of provider oversight expected.
Decency Limits
A ceiling on allowable charges for advice, set by a product provider. It is intended to prevent advisers charging exorbitant fees to consumers who may not fully understand the 'normal' costs of advice.
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I can't believe it....
but I think I am actually coming down on the side of what I think the FSA have said. i.e. not that they want the provider to oversee or police business, but simply to raise a question mark or flag something up which looks to exceed a "decency" limit. I agree we need to be able to arrange some contracts at a discount and take a hefty amount from otehrs should we and the client agree (if it is in theri best interests as that is what Custoemr Agreed Remuneration was supposed to be all about), but I'd like to know that if someone takes an excessive amount from a contract (decency limit), whilst it should not be blocked, that someone externally just asks for an explanation at the time, puts it on file, carries on with the business and sends a marker off to the FSA so that they can look for trends or consider asking the adviser about it themselves. That is not "supervision" as I understand it, that is a duty of care.......
Posted by: Phil Castle
Well, sooner or later the FSA...
... had to propose something sensible! I don't have a problem with decency limits. Had they existed 5 years ago then Barclays would probably have had to report itself for the £34,000 in initial commission it took off a customer who has since joined us. How will this apply though to provider/distributors such as SJP and Towry Law who run funds themselves into which they invest all their clients?
Posted by: Neil F Liversidge
RDR
The regulator, whose failed Chief Executive is rumoured to be paid £500,000 per annum, has the gall to complain about IFAs overcharging! The sooner we can get rid of the FSA the better, for advisers and consumers alike.
Posted by: terry1
Out of their depth
This is another proposal that demonstrates that the FSA are out of their depth in regulating the Retail Advisory Market. They are so obsessed with the process of Regulation they have forgotten about the context, the cost and the relevancy. Every time they open their mouths there is another set of costs, and ultimately it is the consumer that will bear the price. Given the timing, surely it would be relevant for the Treasury to examine the research of the latest Nobel Prize winners to get some fresh ideas on a practical level of regulation that is cost effective.
Posted by: Glen McKeown
Joined up thinking?
Another example of FSA joined up thinking. The law of agency says we are agents of the client and therefore not to be remunerated by the provider. How then is it that the FSA deems it appropriate that the provider monitors our remuneration, but does not pay us? Doesn't quite hang together does it?
Posted by: SIMON MANSELL
Director
Once again the FSA have proven what absolute W.....s they are when it comes to presuming to know how to regulate the industry that pays their gob-smacking over inflated renumeration that they call a salary. Regulate - they couldn't regulate a p...up in a brewery
Posted by: Ken Wilson
What next?
Incredible! Regular meetings take place at the Canary Asylum to plot RDR which is apparently under consultation,yet plans are being made for post RDR.
Posted by: Peter Taylor
partner.
What a load of cobblers. We have our network supervising us, we have the FSA supervising us, why the heck do we need someone else. Anyway if you look at lenders specifically, they did not do very well at ensuring there were no problems befor the credit crunch. Who is going to pay for the extra work that will be created for the IFA completing the providers special paperwork so they could supervise us. Could someone with some nous wake up and taste the coffee. I suppose if you are sat in flashy offices on gold plated salaries and pensions you can sit and dream up all sorts of things without realising the costs.(My opinion of the FSA)
Posted by: terry arch
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