The Financial Services Authority (FSA) will decide the fate of the RU64 rule next month when they put their final proposal before the FSA board.
But even if the rule is abolished, the FSA would still expect advisers to take into account the potential impact of a National Pension Savings Scheme (NPSS) on their clients, if it is implemented, when advising on pension arrangements.
Speaking at the Treasury Select Committee inquiry into the design and regulation of an NPSS, Clive Briault, managing director of retail markets at the FSA, said although it was still considering the “very divergent views” received in response to the consultation on RU64, it would be putting a proposal to the board in June.
Under current FSA regulation, the COB rule commonly known as "RU64" - when published on Regulatory Update 64 - requires financial advisers explain to clients why they have not recommended a stakeholder pension.
When questioned on whether removal of this rule would have an impact on the possible introduction of an NPSS, and questions of suitability, Briault admitted although there would be no direct written rule, the regulator would still expect advisers to take account of the possible introduction of an NPSS or its alternative.
He said if it was confirmed an NPSS would be introduced from 2010 or later, then advisers would be expected to take into consideration what such a scheme may offer, when it would be available to clients and what flexibility would be open to the client to transfer across to such a scheme.
Briault added the FSA would expect the introduction of an NPSS to be “an aspect of advisers' suitability considerations” when advising on pensions arrangements despite the removal of RU64 meaning there would be no legal requirement to do so.
However, John Lawson, head of pensions policy at Standard Life, says it sounds like the FSA would still expect advisers to keep to the RU64 rule despite there being nothing in writing.
He says the danger is if there is an inkling the FSA is going to come down hard on anybody selling a more expensive product before a NPSS is introduced, then both advisers and providers are going to steer well clear of a market where contribution rates would be 8% or less, given this would be the NPSS target market.
Lawson says in this case, the unwillingness of advisers and providers to sell products in this market sector for the next few years - until the NPSS is properly introduced - would create an enormous vacuum in the market, which would be not in the public interest as the idea is to encourage people to save for retirement, not stop them.
He warns: “There are enormous dangers in this FSA approach in the next four years, as they have to be careful they don’t stop the market in its tracks. Although there’s no written rule requiring a suitability letter, if it seems the FSA will crack down on those selling stakeholders or group personal pensions ahead of the NPSS, people will simply stop selling.”
Anna Sofat, director of IFA firm AJS Wealth Management, says until an NPSS is fully introduced with clear rules on how it would affect clients, it would be difficult for an adviser to do anything other than say, this product is coming but we don’t know the details and don’t know how it would affect you.
She says: “In reality if the FSA goes ahead with this approach, it will mean very little in terms of value to the customer, as every reason why letter will simply include a paragraph explaining the NPSS is coming, so the adviser covers themselves in terms of compliance and risk management. But as many people may just skip through the letter and may miss the section, it won’t necessarily give the client any extra value.”
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Nyree Stewart on 020 7968 4558 or email [email protected]IFAonline
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