Yesterday's retail distribution review (RDR) consultation paper confirmed many things fee-based advisers had hoped for and many things the old guard had feared.
The focus of the report was the revelation that financial advice will be split into two categories, 'independent' and ''restricted'. All systems are of course open to abuse and Tenet was keen to point out that this applies to the 'restricted advice regime. Underneath these two regimes however the FSA has performed a u-turn and agreed to allow a lower threshold for those giving only basic advice.
For those seeking to carry the 'independent' mantle there are a number of hoops to jump through
Perhaps most importantly however the report confirmed that those seeking to be independent will need to gain QCA level four. Though there will be opportunities to achieve this through a non-exam route and advisers themselves may act as assessors. The paper did say however that in some respects just passing level four might not be enough with some areas of advice requiring a higher benchmark. The EU will make sure of that. But pass these exams advisers must and the paper said that by 2012 when it comes into effect the professionalism board which will govern adviser training will gain statutory powers.
For those who can pass this bar though there will certainly be opportunities. Aifa claimed the report will enable independent advisers to put clear water between themselves and the salespeople. Indeed one adviser, Martin Bamford, joined the chorus of support at the changes saying it made him proud to be an IFA again. Such positive sentiment will be music to the ears of the regulator which hopes RDR will mark a turning point in financial advice and has even insisted that this new regime carries a new set of ethics.
But it was not universally well received. The response from life companies was mixed with some arguing that the net effect would be to make advice less accessible. Their trade body the ABI was quick to rally the cries. What it will certainly do is make it harder for advisers to be paid by life companies with its insistence on adviser charging. From now on in charging has to be transparent and life companies cannot conceal or disguise it on behalf of advisers. In this regard EU regulation is becoming ever more important.
There were also some emerging as losers from the report, not least of which were the private banks who will struggle to retain the 'independent tag'. Similarly the review made a point of saying that independent advice means more than just picking UK shares, putting old-school stockbrokers under pressure.
The paper also acknowledged that all this change will scare some out of the industry, in fact it said that as much as 20% of the adviser workforce may leave. Though it argued this is not necessarily a bad thing. And the Chartered Insurance Institute believes that adviser retention rates will not be as bad as some fear.
For those advisers dependent on initial commission who do not share the enthusiasm of fee-based advisers like Bamford the FSA has little succour. It will work to prevent them shifting into the protection business to chase up front money.
All of this of course comes at a cost and ironically more of the cost will have to be met by the fee-based advisers who are in a position to embrace it.
Just as a footnote for those who may doubt the regulator has eyes in the back of its head. The FSA used the report to highlight the mis-selling risks of group pension schemes.
In the end despite the cries of the life companies, the fears of commission-based advisers and the risks involved New Model Adviser® editor Gavin Lumsden concluded that those on the road to transformed advisers businesses can reach only one conclusion. Hurrah for RDR!