Can IFAs go ‘passive only’ after RDR?
As the RDR approaches, how will the new definition of independent affect advisers?
It looks as if those advisers who choose restricted status under the new RDR rules will have one advantage over their independent peers after 2012. At least they can be sure of their status and won’t be worrying about the regulator coming around and demanding they change the stationery and the sign over the door.
By contrast, the debate has barely abated around how IFAs can remain independent after the RDR. The latest discussion in the past few weeks has revolved around whether advisers who favour passively managed investments pass muster under the new definition of independence. After the RDR, independent advisers have to cover the whole of the investment market, rather than just a segment of it.
It may be a good time to ask if the supposedly tarnished brand of IFA is going to look a lot shinier post RDR.
A firm line from the FSA could have seen a significant minority of advisers from the financial planning camp having to accept the restricted label. Forty Two Wealth Management’s Alan Dick, who is also a newly minted vice president at the Institute of Financial Planning, said he was sure his proposition was within the rules. Effectively, he claims that it is possible to consider all the funds on the market, decide that passive is best and meet the requirements of independence.
Indeed, that view has been confirmed by the FSA’s technical specialist Rory Percival at the recent Succession conference – provided the adviser has looked at the whole market and then decided on passive then advisers should retain their independent status. In itself, that should settle passive planners’ nerves. However, it sounds a little different in tone from remarks from the FSA press office reported a few days earlier.
It is clear that the FSA is going to be facing a barrage of questions in the next few months. As frustrating as it may be for advisers, not all the messages will be identical as advisers and the press demand answers. Indeed, while it could be dismissed as a gimmick, it might even make sense for the regulator to set up an RDR hotline for the next six months. It could save a lot of unnecessary arguments after the deadline.
It will be the post-2012 approach from the regulator, however, that will be the key. It is in many ways unfortunate that a brand new retail regulator – the Financial Conduct Authority (FCA) – is being created in the first few months of the retail reform.
The approach of its new leaders will be crucial, though there are some reasons for optimism, with incoming FCA head Martin Wheatley at least appreciating the efforts many IFAs have made to get the necessary qualifications.
But when it comes to the FCA’s stance on RDR compliance, it is to be hoped that the new regulator will understand if there are teething problems at adviser firms which are trying to do the right thing by their clients. The big intervention – the RDR’s ban on commission payments from product providers to advisers – is inevitable and unavoidable, with all the implications this has for running advice businesses and relationships with clients. On issues such as compliance with the restricted and independence requirements, the industry should ask for, and hope for, guidance and a steer in the right direction before any tougher measures are introduced.
More from John Lappin
- Young upstart sets out to fight aggressive regulation
- Altmann will have to tackle pensions piggy bank
- Tories’ small margin of victory means nothing is certain
- With eyes on the election, how is pension freedom faring?