FSA consults on raising professional standards for all investment advisers

16 Dec 2009 12:35 PM

The Financial Services Authority (FSA) has today published proposals for enhancing the professionalism of investment advisers under the Retail Distribution Review (RDR).

The RDR is seeking to rebuild people’s trust and confidence in the retail investment market by raising standards of professionalism.  A key element of the FSA’s wide-ranging reforms is that by the end of 2012, advisers, whether independent or restricted, will need to demonstrate greater knowledge and skills and meet enhanced standards in dealing with clients.

The FSA is proposing to create a new in-house governance structure to ensure advisers achieve this greater level of professionalism, both initially and on an ongoing basis through the achievement of new, higher level qualifications; meeting enhanced standards of continuing professional development; and adhering to common ethical standards. 

This streamlined approach fits with the FSA’s existing role in approving and supervising investment advisers, and would enable the FSA to apply its more intensive supervisory approach, including its greater focus on individuals in key positions, to the retail investment advice sector.  At the same time, the FSA is proposing that professional bodies, registered with and overseen by the FSA, should play a greater role in helping their members meet its new professionalism requirements.

The FSA has also clarified a number of important issues about the new level of qualification investment advisers will need to meet by the end of 2012.  In particular, it has published a list of qualifications that advisers may already hold or be studying towards, with the guarantee that should they hold one of these qualifications they will not need to take further exams once the content for meeting the new qualification standard is confirmed.  Instead, advisers are able to meet any gaps through on-the-job continuing professional development.

Sheila Nicoll, the FSA’s director of conduct policy, said:

"Raising professional standards is a core strand of our reforms of the retail investment market.  Through this, people will come to expect the same level of professionalism from investment advisers as they do from other professions.  We will closely supervise the necessary improvement in standards that we are seeking to bring about which, along with the other aspects of the RDR, will come into force from the beginning of 2013. 

"We have always said that the RDR’s proposals are an opportunity for firms to modernise their practices and to put the interests of their customers first.  We have responded to industry feedback and are giving advisers more certainty about what they need to do by clarifying important points on qualifications.  Advisers need to consider how the changes will impact on them and how they need to respond – now is the time to act."

In addition, the FSA has set out proposals for removing commission bias from the group personal pension (GPP) market by ensuring that employers will be able to agree up-front how much investment advice will cost them and how they will pay for it.  The FSA has also set out its views on the extent to which it may be appropriate to apply the RDR’s proposals to pure protection products and invites views on extending higher professional standards to pure protection advice.

The FSA is inviting responses to its proposals by 16 March 2010.

Notes for editors

1. Consultation paper CP09/31: ‘Delivering the Retail Distribution Review: Professionalism; Corporate pensions; and Applicability of RDR proposals to pure protection business’.
2. To help investment advisers understand the proposals it has published today, including what is required of them to meet the 2012 qualifications deadline, the FSA has published a factsheet and information on its small firms’ website.
3. The Financial Services Skills Council (FSSC) is currently consulting on the exam standards that will meet QCF Level 4 (the new, higher level of qualification that investment advisers will need to hold to be able to give advice once the RDR comes into effect).  It is expected that the FSSC will publish the final standards in March 2010.  Further information is available on the FSSC website.
4. In June 2009, the FSA published consultation paper CP09/18: 'Distribution of retail investments: Delivering the RDR'.
5. 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.