The FSA’s interim feedback report on the Retail Distribution Review published at the end of April received a cautious welcome for having listened to IFAs’ concerns and for making a clear distinction between advice and sales.
Other key points in the report were that advisers should achieve minimum qualifications, possibly diploma level, but not as high as chartered status.
‘Advisers’ offering independent advice, must be ‘whole of market,’ while ‘sales’ services would have to be on a strictly non-advised execution only, or ‘guided sales’ basis.
This would mean that multi-tied andtied advisers would be likely to fall under the sales category.
Advisers would have to operate ‘customer agreed remuneration,’ without any influence from product providers, although the FSA suggests that providers can still advance payments to advisers and recover the costs from customers out of regular charges, in a similar way to front end commission.
The feedback document also mentions the potential for some form of maximum commission agreement. Less popular was the FSA’s proposal that there should be no 15-year time bar on customer complaints.
The Institute of Financial Planning attacked the FSA for dropping proposals to separate advisers into general advisers and financial planners, saying that the distinction between advice and sales needs to go further.
AIFA deputy director general, Fay Goddard, said there was a danger that the mass market would be predominantly serviced by sales people.
Unsurprisingly, the banks and building societies are expected to fight a vigorous rearguard action to overturn the proposals which would effectively ban tied advisers in their branches from offering general advice on pensions and long term savings to the mass market.
But everything is still up for grabs and the FSA says it is up to the industry to provide ‘market-led solutions’ that will deliver better outcomes for customers. Its final report on retail distribution will be published in October 2008.
Elsewhere, there was uproar when the ABI ditched its 10 day turn- round target for processing open market annuities, replacing it with a requirement to pay out funds by the selected retirement date.
IFAs’ anger was compounded by the publication of a FSA report severely criticising the standard of insurers’ open market option (OMO) communications with customers six months before they retire, calling on annuity providers to improve their OMO correspondence by December this year.
Tom McPhail of IFA firm, Hargreaves Lansdown, accused the ABI of being “in real danger of becoming the Comical Ali of the finance industry” and called for the OMO to be the default option, with a requirement for fund transfers to be made within five days of the relevant paperwork being submitted to an insurer.
Meanwhile, Lord Hunt’s recommendation that the Financial Ombudsman Service ‘name and shame’ the worst performing companies with regard to their uphold rate, was attacked by a former FOS adjudicator on the grounds that firms might feel pressurised to settle unjustified complaints.
But FSA chief executive, Hector Sants, appears to be keen on the idea, saying that ’naming and shaming’ can be a more powerful deterrent than imposing fines.
Elsewhere, the European Commission confirmed that automatic enrolment of members into contract-based pension schemes is consistent with EU law which will greatly simplify enrolment into both GPPs and personal accounts from 2012.
But pensions consultant, Ros Altmann, called on the industry to break the political consensus on personal accounts because she believes the scheme is doomed to fail, due to the disincentive to save posed by means testing.
Meanwhile, Friends Provident remains in talks with various bidders for its 52 per cent stake in F&C and its wealth management unit, Lombard and Prudential is eyeing up Equitable Life’s £7bn with profit fund, having already taken on £1.7bn of its with profit annuity book.
Lord Adair Turner, meanwhile, looks set to become the next chairman of the FSA, replacing Callum McCarthy who steps downin September.
