The FSA will put transitional arrangements in place to enable investment advisers to continue using the Menu and IDD until 31 August 2009 before switching to a new simplified disclosure document.
This will allow firms to exhaust their existing stock of documents and give them time to consider the disclosure option that best suits their business model, the regulator says.
The move away from the Menu and IDD (initial disclosure document) follows the introduction of the FSA’s COBS (Conduct of Business Sourcebook) regime, which came into effect on November 2007, and was intended to introduce a principles-based approach to disclosure.
Before COBS came into force, investment advisory firms were required to give customers the Menu and IDD on first contact with a view to giving advice on packaged products. The IDD includes information on services a firm offers while the Menu outlines how the firm is to be remunerated.
However, when COBS was introduced, the FSA placed the Menu and IDD in guidance and in February it proposed introducing a single document in guidance to replace them.
In response to feedback, the FSA says it will now build on COBS by introducing the new Services and Costs Disclosure Document on 6 August 2008. It will combine in one document key information about a firm’s services and costs, and provide firms with greater flexibility to explain the cost of their services in their own words.
As guidance, it will be one way for firms to meet COBS disclosure requirements, although firms will be free to develop their own material in order to comply.
Andrew Sykes, head of retail investment policy at the FSA, said: "Our emphasis on more principles-based regulation means focusing on the outcomes that matter, and giving firms the freedom to meet these outcomes flexibly.
"This new material builds on the guidance that currently exists and will further simplify investment disclosure. It aims to help firms provide key information in a more streamlined way to help consumers better understand the services being offered, and the cost of those services.
"Firms will be able to use the new document to meet COBS disclosure requirements – but firms will also be able to develop their own material to meet these requirements and provide effective and clear disclosure to their clients."
The FSA says it recognises the potential link between disclosure and the Retail Distribution Review (RDR). As a result, while the final shape of the RDR remains to be determined, the new disclosure document has been designed to take account of the broad RDR direction. The RDR Feedback Statement will be published in October.
The move to replace the Menu and IDD was criticized by some advisers who were unhappy the new document would be optional. However, the FSA said it has to cater for those firms that “do not want to be told how” to disclose cost details to their clients.
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