The Financial Services Authority (FSA) has cited a number of potential concerns it believes could lead to consumer detriment as firms make changes to their business models ahead of RDR implementation next year.
Whereas the regulator believes it will put a stop to commission bias as a result of RDR, it said it is now worried about possible 'sales biases', as well as provider influence.
The concerns are listed in the regulator's second Retail Conduct Risks Outlook, which also seeks to identify some of the products it believes are more likely to be mis-sold, or mis-bought.
The FSA's concerns are:
While the RDR addresses potential commission bias, a sales bias is likely to persist in cases where the adviser charges fees contingent on a product sale or where charges are paid for ongoing advice regardless of whether or not products are sold.
The requirement to provide an ongoing service to justify ongoing fees may incentivise firms to move to portfolio advice or discretionary management services and inappropriately make more transactions on an account than necessary. This may increase costs for consumers or the risk of unsuitable advice.
Some providers may seek to avoid the ban on commission by offering other incentives to advisers, such as business or consultancy services, although inducement rules should mitigate this. There is a risk that this may continue to bias the sales process.
Business model change will put strain on advisers' compliance functions. We expect some advisers to seek appointed representative status within networks as a strategy for dealing with the RDR. This will stretch compliance functions in networks, which will also be trying to adapt to the new regulatory regime. The risks in this regard discussed in the Retail Intermediaries Sector Digest (part of the FRO 2010) remain relevant.
The FSA also said firms should ensure their systems and controls, including competence of employees, keep pace with any changes in their strategy and business model, and with any new services the firm is offering.
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