Financial Conduct Authority
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FSA publishes first paper from the Retail Distribution Review

The Financial Services Authority (FSA) today published the first proposals for discussion from the Retail Distribution Review (RDR). The Discussion Paper (DP) represents ideas from the market and consumer representatives involved in the RDR and follows six months work to address the root causes of persistent problems in the retail investment market.

The ideas seek to improve the current standards of professionalism; find more cost-effective ways of making advice available to a wider range of consumers; and improve consumer understanding of what they are getting for their money.

To achieve this, the key proposal is that the regulated investment advice market could be divided into two parts giving choices to firms and greater clarity to the consumer. These could be summarised as:

Professional financial planning and advisory services - which could be offered by highly qualified advisers serving those consumers who need the full range of advice. There could be two types of adviser. The most highly qualified could agree their remuneration directly with the customer and not with the product provider as is often the case with commission now. They could then call themselves 'independent'.

Those firms not meeting these conditions might wish to use provider-driven remuneration (i.e. commission), but if they did they would not be able to call themselves independent. The FSA would then seek to address the risks of lower professional standards and potential conflicts of interest through increased regulatory requirements. This would provide regulatory incentives to all firms to operate with higher standards.

Primary advice - providing advice on more straightforward needs using simple products. This advice could be less costly and more easily explained to a consumer than full professional financial planning and advisory services. It could be aimed at a wider consumer audience than the existing Basic Advice regime, with a wider range of products and without charge caps. It could build on the work of the Thoresen Review of generic advice.

Clive Briault, Managing Director of Retail Markets at the FSA, said:

"We welcome the strong engagement and commitment shown by the market on this issue over the last six months. Tackling the root causes of the problems within the retail investment market is a challenging and complex issue and is not something that can be solved overnight. The proposals from industry, consumer groups, trade and professional bodies set out in our paper today have considerable merit and are worthy of further exploration and debate.

"To move this ahead, continued engagement is vital. The major changes that have been proposed could have many consequences for the market and a full and lengthy debate during the six month consultation period with consumers and industry is required. We will play our full part in continuing to facilitate and enable market-led change. Once it is clear that significant benefits can be achieved, this will be reflected in the final proposals."

The Retail Distribution Review was launched in June last year by the FSA Chief Executive John Tiner. The problems in the retail market were also highlighted by FSA Chairman Callum McCarthy in a speech made at a Savings & Pensions Industry Leaders' Summit in Gleneagles last September.

During the DP's six month consultation period, which ends on 31 December 2007, the FSA will be actively seeking the views of industry, consumers, professional and trade bodies. As well as undertaking further research on the impact of the ideas in the DP. The FSA aims to publish a feedback statement in Q2 2008.

Notes for editors

  1. Full text of the speeches delivered at the RDR conference by Clive Briault and FSA Chairman Callum McCarthy are available on the FSA website.
  2. The FSA's Retail Distribution Review Discussion Paper, DP07/1, was launched today at the Retail Distribution Review conference.
  3. The FSA has today also published a Discussion Paper, DP07/2, on 'Platforms: the role of wraps and fund supermarkets'. Platforms are online services used by intermediaries (and sometimes consumers directly), to view and administer their investment portfolios. Significant growth in the use of platforms over the past year is one of the market developments considered during the RDR. This paper aims to stimulate industry debate about the standards firms should meet in offering and using platforms.
  4. The chairs and members of the RDR's five groups were posted on the FSA's website in January (See press notice 006/2007).
  5. The FSA will be publishing in early July a separate DP on the prudential requirements for personal investment firms.
  6. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.
  7. The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness.

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