The PFS's plans to publish a ‘plain English' version of the FSA's RDR guidance are to be applauded. Good luck to Fay and her colleagues in trying to make sense of what is a long, convoluted and often ambiguous document!
The PFS says it believes a new guide is vital as there is still a lot of confusion surrounding what will be required post-2012.
In no area is there more uncertainty than the differences between ‘independent' and ‘restricted'. Some helpful comments have been made on this issue this week by Fay Goddard and Tenet's Keith Richards. They point out the difference between the categories partly relates to the range of product types on which advice can be given.
Firms offering ‘independent' investment advice to retail clients must consider more than just packaged products. Advisers who only advise on packaged products will still be able to offer the same service but under the ‘restricted' advice banner.
As Richards says, restricted does not mean ‘multi-tied' in the de-polarised sense of the term.
However, there is a major stumbling block which will make it difficult for the PFS or any body to really illuminate the situation for advisers.
This is the ambiguity surrounding the FSA's definition of what is included in the scope of ‘retail investment products', which advisers will need to have a full grasp on to be called ‘independent'.
I remember talking to the FSA at the time of the release of their latest RDR paper and asking why this definition could not be more definitive. Couldn't you just clearly state which products are included? There answer was this was almost impossible as there are new types of product being launched all the time so a list would be constantly evolving. There are also issues with European legislation, which has not yet been finalised, so a fluid definition appears to suit the current environment.
Even in its latest RDR Policy Statement, the FSA acknowledges there is adviser confusion on this issue although it did not believe a list was the answer:
"It was clear from a number of comments that it was not widely understood that many ETFs already fall within our current definition of packaged products. Similarly, it was clear from some comments that it was not known that structured products often do not fall within the definition of packaged products. This highlights the difficulty with having a list of products that becomes outdated due to product innovation."
With the best will in the world, it is going to be difficult for the PFS to reach a clear 'easy-read' version of this part of the RDR. They will also be hard-pressed to make sense of this gem: "Our new rules are intended to ensure that all products that might achieve similar outcomes for, and be offered to, retail investors are caught by our requirements, and we have included a ‘catch all' in our definition of ‘retail investment product' to help ensure this is the case. If firms are in doubt they should assume that products are caught."
It all comes back to how prescriptive advisers wish the regulator to be. I would suggest in areas like this, where there is still considerable uncertainty, then the rules need to be laid down in stone. The FSA wants to avoid firms trying to bypass adviser charging requirements and reduce the number of enforcement actions further down the line. The danger is by making this definition open-ended it could have as many interpretations as there are firms.
The PFS says it will be working with the FSA on its guidance. Maybe through this process, the regulator will realise the extent of the educational work it must still do with advisers before the end of 2012 to ensure there is no confusion and more importantly, the consumer fully understands the proposition they are being offered.
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