Financial Conduct Authority
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FSA's Retail Distribution Review proposals seek to establish a new level of consumer trust and confidence

The Financial Services Authority (FSA) has published its Retail Distribution Review (RDR) feedback statement outlining proposals to give more consumers confidence and trust in the retail investment market, at a time when consumers need real help and advice with their retirement and savings planning.

The proposals also reform the investment market, preparing both consumers and the industry for the future.  The statement outlines how this new level of confidence and trust for consumers can be established by:

  • Providing greater clarity for consumers about the advice service being offered by making a distinction between independent advice and sales advice, and including the connection with the proposed free Money Guidance service;
  • Raising professional standards of all advisers by setting minimum qualifications for different types of advice and establishing a Professional Standards Board to boost consumers’ confidence in the industry;
  • Modernising the way advice is paid for by requiring independent advisers to agree the cost of financial advice with customers up-front, removing the possibility of commission-bias and ensuring the cost of all advice is clear to consumers whenever it is given; and
  • Introducing a new standard for independent advice by ensuring advice is unbiased, unrestricted and extends to all types of investments.

Jon Pain, FSA managing director of retail markets, said:

"The RDR proposals provide a golden opportunity to regain consumer confidence and trust in the financial services industry.

"Consumers need help more than ever with their financial decisions, whether planning for retirement, saving for the future or dealing with current financial pressures.  We believe there has never been a better time to foster more confidence in the industry and provide consumers with real help and advice to empower them to use savings and investments products more often.

"The reforms are wide-ranging and will be challenging for the industry, but they also present significant opportunities for firms and individuals operating in the retail investment market to modernise practices, raise standards, and treat their customers fairly. 

"We are grateful for the feedback and engagement we have received from small and large firms alike.  We remain open to suggestions on how to further open up access to advice through industry solutions such as guided sales, as well as through the free Money Guidance service that we are piloting in partnership with the Government."
 
The key proposals in the feedback statement include distinguishing between independent advice and sales to create better clarity for consumers about the investment services available.  The key points of this distinction are:

  • Independent advice is where adviser firms provide recommendations that are unrestricted and unbiased and consider all investments and providers from across the market to ensure they meet a customer’s needs. Consumers will agree the cost of advice up front – removing the potential for bias – and independent advisers will adhere to significantly higher professional standards.
  • Sales advice will be where firms recommend the products of one or a limited range of providers and make this clear to customers.  Sales advisers will also have to meet the same professional standards as independent advisers and show clearly the cost of their advice. 

To increase and improve consumer access to investments, the FSA will also help firms develop a simplified sales service for a limited range of products, building on the work already underway in the industry and by individual firms.  The FSA will remove its current rules for Basic Advice to simplify further this landscape.  

The FSA will be consulting on policy proposals for the RDR during the first half of next year with the intention that all firms will have implemented the changes by the end of 2012.

In parallel with the RDR, the FSA has been reviewing the prudential requirements for personal investment firms (PIFs) and will publish a consultation paper on raising the minimum standard and improving the quality of capital and making it consistent for all firms.

Notes for editors

  1. The FSA's RDR feedback statement can be found on its website.
  2. The FSA's RDR discussion paper was published in June 2007.  For more details see press notice 076/2007.  The interim report was published in April 2008, following a six-month consultation with the industry and consumer representatives.
  3. The RDR applies to all retail investment business and is a key part of the FSA retail strategy, and was launched in June 2006.  The problems in the retail market were also highlighted by former FSA Chairman Callum McCarthy in a speech made at a Savings & Pensions Industry Leaders' Summit in Gleneagles in September 2006.
  4. The FSA’s RDR conference will take place from 12.50pm today. It will be broadcast live from the FSA website. There will be a link from the home page to the broadcast.  The broadcast will be available for a 6 month period following the conference.
  5. The FSA will also conduct consumer research into the clearest ways that the different forms of advice can be described for consumers.
  6. Feedback statement FS08/2: Review of the prudential rules for Personal Investment Firms was published in April 2008 and set out responses to the discussion paper (DP07/4) published in July 2007.
  7. The FSA has published a post-implementation review of its basic advice regime, which can be found on its website.
  8. 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.
  9. 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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