All financial advisers will be required from 1st June 2005 to disclose the firm's remuneration arrangement to all clients ‘on first making contact', and present a copy of both the advice cost menu the initial disclosure document (IDD) as soon as possible.
Details of the FSA’s PS 04/27 - Reforming Polarisation: Implementation – Feedback reveals the FSA received 114 responses to its previous proposals for depolarisation, as set out in CP04/03, many of which were from financial advisers.
Even though the FSA has continued to require all firms – retail and private - disclose remuneration arrangements “from the outset”, one of the first issues to be raised by respondents in feedback was whether consumers might find the amount of information they receive at the outset of advice as overwhelming, as they are given the IDD, the menu and the terms of business, without having any specific information about the quality of the advisory service available.
Moreover, some respondents argued the client may not really know what advice proposition is most appropriate until the client’s financial circumstances and needs are actually known.
The FSA argues raising consumer awareness about the cost of advice appears to trigger “consumer behavioural changes” which encourage shopping around or negotiating over the level of commission paid, while consumers also recognised the menu was just an indication of the costs, and not a personal illustration.
As a result, the FSA is planning to launch a consumer education campaign on the menu, what it contains and how it works.
There were also concerns raised about the additional time advisers will have to spend on taking clients through disclosure requirements, as the estimate first made by the FSA was insufficient for many advisers.
Although many firms agreed with the FSA "if additional time is needed to go through the menu then that is time well spent", the FSA now recognises it will take longer than initially anticipated so both the time and compliance costs of the process have been increased.
Anyone offering telephone advice will still be required to present certain information in the IDD and menu when initial disclosure is made, even though the documents cannot be sent out until after a sale is made.
Only firms offering fee-based advice are then required to present a menu if they are advising on 'non-menu' products.
Anyone offering advice on packaged products is required to present both documents, as specified in earlier COB4.3.3 R rules.
Those firms conducting execution-only business are only required to present information contained on the IDD - as specified by the Insurance Mediation Directive, but will be required to send out a menu too if offering advice about life policies.
Similarly, there are other exemptions which do not require a menu be given to clients:
Cautious, Balanced & Dynamic Growth
Cowardly, boring or sensible
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