The purpose of the interim report is to set out the principal areas of feedback received on the earlier paper. The interim report sets out a view of the future landscape for advising on and sales of financial products to retail consumers based on the feedback received, with a view to obtaining further industry and consumer feedback. The FSA intends to publish a full analysis of the feedback received in October 2008.
The FSA has taken note of feedback calling for a simpler regulatory landscape in this area and recognises the need for a clear distinction between advice and sales. Against a background of different views received by the FSA on the separation of advice and sales, the proposed starting point is for “advice” to be restricted to those who can meet a step-change in standards and who are, in practice, acting as the agent of the customer.
Advice is envisaged as a process focussing on the consumer’s needs whether or not resulting in a sale. Advice would need to be independent, by which is meant whole of market analysis. All other services would therefore be regulated as sales – a process intended to sell a product to the consumer.
The FSA contemplates that the sales (also referred to as “non-advised services”) function would cover both execution only services (where the customer knows what they want to buy) and so-called “guided sales” (where customers participate in a non-advised information-providing process which leads to some choosing to buy a product) allowing customers to make simple guided choices. This latter category requires the customer to understand the nature and limitations of the services provided.
In connection with a joint FSA and Treasury initiative arising from the Thorensen Review of Generic Financial Advice, a third category of service, money guidance, is proposed. Money guidance would not be regulated and may be a national service rather than a commercial one.
One of the most significant issues addressed in the discussion paper is the proposed change to the manner in which firms are remunerated for advice and sales services, particularly commission and other incentives provided to intermediaries by product providers. The original proposals introduce the concept of customer agreed remuneration by which the customer must agree to the total remuneration received by the intermediary/adviser from all sources including the product provider. The interim report comments on the feedback received and raises six further questions for input by the industry and consumers/consumer bodies.
To read the full interim report, please click here.
For reference, the original FSA RDR report is available here.