From 2013, independent advisers must have a working knowledge of all ‘retail investment products’. There’s just one problem: the FSA has been slow to define what they are.

A lack of clarity from the r­egulator on the definition of a “retail investment product” (RIP) is hampering advisers’ preparations for the Retail Distribution Review (RDR), it has been claimed.

In an RDR policy paper last year, the ­Financial Services Authority introduced the term to reflect the “range of ­products that a consumer would expect an IFA to have knowledge of”.

The regulator said RIPs would include not just packaged products, but also structured ­investment ­products, all investment trusts and ­unregulated c­ollective ­investment schemes.

Also included are “any other investment that offers exposure to ­underlying assets, but in a ­packaged form which modifies that exposure ­compared with a direct holding in the financial asset”.

Despite repeated calls for it to do so, the FSA did not provide a comprehensive list of what product types would count as RIPs, although it said it would respond to queries from firms on an individual basis.

But firms now claim the regulator is not ­providing the clarity it promised it would. Services provider Threesixty has been ­attempting to seek ­clarification on ­whether certain ­products would be classed as RIPs, including film ­partnerships, enterprise investment schemes and 100% protected structured products.

However, managing director Phil Young said the FSA has not been able to provide clear answers, hitting its ­preparations for gap-fill sessions next year, and preventing advisers from ­getting a full picture of the whole-of-market requirements to be independent.

He said: “We do think it’s a bit ­ridiculous that these things have not been defined yet.

“The gut feeling I get is that it has caught them by surprise and they haven’t locked any of this stuff down. Even if something is not an RIP, while it doesn’t impact on independence, it could ­potentially mean there are other exams needed to advise on them because they are securities.”

Inconvenience

However, Simplybiz managing director Matthew Timmins said advisers need not be concerned as there is still more than a year until the RDR rules are rolled out.

“There is no point in getting a firm idea at the moment and I don’t think most ­advisers need ­clarification on it right now,” he said. “It’s correct that advisers get things right rather than hurrying.”

However, he accepted it was an ­inconvenience for firms who wanted to be RDR-ready now.

Harry Katz, principal of Norwest ­Consultants, insisted advisers should have the broad knowledge and the ­ability to identify products which would be ­inappropriate.
He said: “People are getting terribly het up about these things.

“What the FSA is saying is as long as you know about these products, that’s what counts. You only have to ­recommend them if they are ­appropriate.”

However, Katz did also point out the ­inconsistencies within the regulator’s own ­messages. “Do people really want some of these weird products?

“On the one hand, you’ve got the FSA ­going on about risk, but at the same time they want us considering all these ­investments under the sun.”

With the FSA insisting on a “catch all” approach under its definition and saying advisers should, if in doubt, “assume that products are caught” [by the RIP clause], it has stressed the need to stay on top of developments in the market.

“We would expect that where you work in a market where innovation in ­ongoing every day, you would expect financial advisers to keep up with that,” an FSA spokesperson said.

Is it an RIP?

Services provider Simplybiz considers all the following to be RIPs:

Collective investment schemes

Exchange-Traded Fund
Real Estate Investment Trust
Enterprise investment scheme
Film partnership
Unregulated collective investment scheme
Warrants
Fund of Hedge Fund
Venture Capital Trusts
Open-Ended Investment Companies
Structured Products
Life Settlement Schemes
Enterprise Zone Trusts
Enterprise Zone Property Unit Trust
Fund of Traded Endowments

Investment companies and other investment entities whose shares can be traded on the London Stock Exchange

Unit-linked life insurance products