On the right track

Just like the words from that Abba musical, "Mamma Mia, here I go again", the retail distribution review came around with some new rules and deadlines and asked whether we could get back to the FSA with our comments as soon as possible so that more changes can be forthcoming.

The latest review will be implemented by December 2012 and the FSA wants our responses by October 2009. Therefore another three years to decide how many more versions it can get in. And what happens if a Conservative government decides that it wants to put its stamp on financial services and disband the FSA and set up another organisation and ditch totally the retail distribution review.

My immediate thoughts on Distribution of Retail Investments: Delivering the RDR, are sort of mixed. It is a case of ‘been here before’ and ‘Oh my God what are they doing that for’ to ‘yes that is a good way forward’ to ‘why do they have to make it so complicated when it is really quite simple’.

First, I must say I have vested interests in the retail distribution and what it stands for, unlike most MPs in this country.

The main issues that the FSA said they are trying to consult on are, according to the press release as follows:

• Independent advice is truly independent and reflects investors needs.

• People can clearly identify and understand the service they are offered.

• Commission bias is removed from the system – and recommendations are not influenced by product providers.

• Investors know up front how much advice is going to cost and how they will pay for it.

• All investment advisers will be qualified to a new higher level, regarded as equivalent to the first year of a degree.

When you look at it like that, you must agree that what they are trying to do is right. We should be more qualified as we are dealing with complicated investments and people's taxes and the ever changing pensions legislation. Commission bias should be removed from the system as it gives the industry a bad name and is abused by many firms especially the larger firms and networks who use commission rates as a means of allowing firms on their ‘best advice’ panels. Investors should know up front how much they are being charged and we should be honest enough to say where the money comes from and independent advice should be truly independent.

But as they always say the devil is always in the detail and that means reading the full 165 pages. I hope the FSA workers get access to a final salary scheme for this.

1. A new standard for independence

Here they expect independent advisers to not just offer the whole market, but the whole market and a bit more besides. This means that we should consider structured products and exchange traded funds as well as packaged products. This seems reasonable except that ETFs could be investing in very risky investments such as commodities and the normal adviser may not have enough relevant experience or knowledge of these areas.