The Financial Services Authority has published a consultation paper (CP09/18) in connection with the distribution of retail investments (including life products but excluding pure protection products: see below) – known as its retail distribution review (RDR). Click here to view our previous post on this subject. The CP includes draft Handbook text reflecting the proposed changes to its rules. 

The proposals would create a new category of “restricted advice” – with an obligation to disclose to the customer the reasons why the advice is not independent. Any restriction on the range of products which an adviser will select from will result in the firm being considered as giving restricted advice. A firm giving restricted advice will be required to disclose that fact, including by way of a one sentence description in its initial disclosure information summarising the scope of the advice given.

The proposals would also prohibit the payment of commission by the product provider. Product providers may, but are not required to, make arrangements for the adviser charges to be paid by way of deduction from investments, although the customer and the adviser firm must still determine the adviser charges to be paid. Ongoing charges are to be permitted only where ongoing services are provided, for example a regular review of the performance of investments, or where a customer is buying a product that is funded by way of a regular contribution. 

The CP also notes that the Financial Services Skills Council is to consult on new benchmark examination standards for retail investment advisers, including core subjects such as regulation and ethics, personal taxation, investment principles and risk and personal application of technical knowledge. There will be no grandfathering, and the FSA is therefore encouraging firms to take steps now towards meeting the new benchmarks. Any gaps between existing courses and the new syllabus will be filled with continuing professional development. The FSA also intends to consult in the fourth quarter of 2000 on setting up an independent Professional Standards Board. 

The proposals do not currently extend to pure protection contracts (term life assurance and all classes of general insurance), but Annex 4 contains an analysis of the general insurance market, and the FSA has invited comments on whether there would be any consumer detriment resulting from a difference in regulatory treatment between retail investment and pure protection products.

The consultation closes on 30 October 2009, except for issues raised in relation to corporate pensions business, where the FSA is seeking responses by 31 July 2009.

A copy of the consultation paper can be found by clicking here.