Retail Distribution Review Feedback Statement

Today the FSA published its Feedback Statement (FS 08/6) on the Retail Distribution Review (RDR), which includes feedback on its Interim Report of April 2008 (see our previous Law-Now).

As a result of industry pressure and the impact of European legislation, the FSA has been forced to reconsider some aspects of the regulatory landscape envisaged in its Interim Report. We set out below the key points, which we will analyse further at our RDR seminar on 3 December 2008:

• European legislation (MiFID) has forced the FSA to step back from its previous proposal that all advice should be whole of market (effectively prohibiting tied and multi-tied advised sales).
• The new regulatory landscape will provide for (i) independent advice, which is free from commission bias and which requires the adviser to be able to undertake a comprehensive analysis of the relevant market, (ii) non-independent sales advice, including tied and multi-tied advice, (iii) guided sales, which covers straightforward sales processes that may be advised or non-advised, and (iv) execution-only services. Crucially, these distinctions will allow banks and other firms that sell a limited range of products to provide advice (which would have not been permitted under the Interim Report landscape).
• The FSA intends to develop proposals aimed at ensuring that consumers have a clearer understanding of the nature of the service supplied by an adviser or salesperson, focussing on effective labelling and disclosure, whilst keeping open the possibility of firms providing both independent and non-independent advice.
• The FSA has moved away from the terminology of Customer Agreed Remuneration, described in its Interim Paper, but the latest proposals still require advisers to set their own charges (with no input from product providers) through the concept of Adviser Charging for both independent advice and, as far as is practicable, non-independent advice. Whilst the proposals do not go as far as banning all forms of payment to advisers via the product, advisers will be required to set their own charges, reinforcing the concept that financial advice is not free.
• The FSA proposes that a Professional Standards Board be established to ensure the same competency levels across all channels, with a benchmark qualification level of at least QCA level four.
• The FSA has set an overall implementation deadline of 2012 for all RDR propositions. It plans to publish a consultation paper in June 2009, and to publish a Policy Statement containing handbook text in Q1 2010.

Overall, the proposals appear to be a success for banks and insurers with substantial tied distribution networks, who have lobbied FSA hard. But firms should not lose sight of the FSA’s irreducible minimum requirement of higher standards across all sales channels.