Regulating in a new era of professionalism: What does the FSA want to see from the industry?

14 June 2012

Clive Adamson gave a speech at the Marketforce and IEA's 15th annual conference, focusing on the changes taking place in UK regulation, the RDR, and how the FSA expected professionalism to play a part in this.

A key component of the Financial Conduct Authority's (FCA) approach is to continue implementing the work that the FSA has already started around professionalism and provision of advice. The Retail Distribution Review (RDR), which is coming into effect on 31 December this year, is a clear example of action being taken to fulfil one of  the FCA’s operational objectives – consumer protection. It continues to be our view that consumers should have:

• clarity in the service they receive;
• a transparent and fair charging system for the advice received; and
• advice from respected and professional advisors.

This is particularly important in the case of long-term savings, for example. The RDR aims to create a resilient, effective, and attractive retail investment market that consumers can have confidence in and trust at a time when they need more help and advice than ever with their retirement and investment planning. Given that long-term savings are long-term commitments, the quality of advice and product suitability is key as often it may take years for signs of detriment to manifest itself.

The Retail Conduct Risk Outlook document, which the FSA published some weeks back, also sets out the regulator's views on how professionalism needs to be at the core of advice for long-term savings, including pensions and retirement planning. Practically, this means:

• as securing financial wellbeing during retirement is paramount to most pension investors, the quality of advice and product suitability for pension and retirement planning become of significant regulatory concern and interest;
• as retirement planning involves complex decisions, it creates the risk that poor advice results in lower retirement income and/or purchase of products with excessive risks; and
• that the impact of detriment is compounded by limited means to recover from financial loss, especially among vulnerable groups (e.g. the elderly) that have lower earning opportunity or financial flexibility.

Adamson stressed that the FSA's aim is not to take away the consumers’ responsibility; it wants them to make decisions for themselves, but ensure that the decision they make is an informed one.

He went on to say that both the RDR and regulatory reform represent huge opportunities to do things better. To give consumers more confidence in the advice they are receiving, it is important that advisers look at their customers as unique individuals, consider their personal situations and fully understand their objectives and potential financial needs. Questions that advisers should be asking themselves are:

• Have you decided if you are going to be independent advisory or restricted? This is possibly one of the most important decisions you need to make.
• Is your pricing structure clear? And do you have the systems in place to ensure your clients fully understand how your advice translates into costs to them?
• If you are advising on high-risk investments, do the individuals providing that advice have sufficient understanding of the products being offered?
• Are you looking at undertaking a wider range of business? If so, have you identified all the risks associated with these products?

Advice should be just that, advice – not a sales/product driven process. It should be about:

• providing the right product for the right person with the right information;
• firms ensuring customer treatment is at the core of their business model; and
• firms provide common sense, professional and clear advice to their customers.

Professionalism also means that what you do should be properly recognised as a profession by setting minimum standards. This is why it is important that advisers continue to press ahead and achieve appropriate Level 4 RDR qualification and then obtain a Statement of Professional Standing. 93 per cent of advisers believe they are on track to complete their qualifications on time and 71 per cent of advisers already have appropriate qualifications. Those who are currently appointed representatives should bear in mind that it is their responsibility to ensure they reach the required standards and the responsibility of principal firms to ensure their appointed representatives have the required qualifications.

Full speech

© FSA - Financial Services Authority