A guide to the FSA Retail Distribution Review (RDR) and how it affects chartered accountants

1. A guide to the FSA Retail Distribution Review (RDR) and how it affects chartered accountants The webinar will begin shortly

2. A guide to the FSA Retail Distribution Review (RDR) and how it affects chartered accountants Gillian Cardy, IFA CentreElizabeth Higgs, ICAEW

3. John Gaskell, Financial Services Faculty Chairman

4. Welcome Participate in today’s webinar – send us a question Welcome

5. Gillian Cardy, Managing Director, IFA Centre Elizabeth Higgs,Ethics and Integrity Manager, ICAEW Speakers

6. A Guide to the Retail Distribution Review Gillian Cardy BA(Hons) MBA FPFS Managing Director, IFA Centre

7. RDR : the background 2006 • John Tiner : KPMG investigates future market scenarios noting importance of advice, need for retirement planning – but many regulatory concerns re promotions, sales processes, marketing of higher risk products, disclosure documentation, unclear suitability of investment advice • Callum McCarthy : Gleneagles considers if the present business model is bust with focus on new premiums, commission incentivising the wrong behaviours, low persistency, low or negative business profits, churning, lack of non-commission paying advice

8. RDR : what’s the point? • improve the clarity with which firms describe their services to consumers • address potential for adviser remuneration to distort consumer outcomes • improve the professional standards of investment advisers

9. What’s the current situation? • Firms may be Independent, Whole of Market, Multi-Tied, Tied • Advisers are supposed to disclose their status and product range • Most clients do not know what sort of advice they have received • Advisers receive commission as payment for advice • Independent advisers must offer clients a fee option • Whole of market = commission only • Commission disclosure required • Most clients unaware of ongoing commission in particular • Level 3 minimum benchmark qualification • No independent verification of CPD

10. RDR : who is affected? • Financial advisers • Direct sales, employed, self-employed • Investment advisers • Bank advisers • Networks and their member firms • Stockbrokers • Wealth managers In short, any firm or individual providing personal recommendations to retail clients on retail investment products …

11. Adviser Types Whole of Market Multi- Tied Independent Tied Independent Restricted

12. What’s an investment product? (the changes to this rule are in italics) A ‘retail investment product’ is a) a life policy b) a unit c) a stakeholder pension scheme d) a personal pension scheme e) an interest in an investment trust savings scheme f) a security in an investment trust g) any other designated investment which offers exposure to underlying financial assets, in a packaged form which modifies that exposure when compared with a direct holding in the financial asset h) a structured capital-at-risk product

13. What’s not included?? • Structured Deposits : capital NOT at risk • Securities : individual shares • Derivatives : individual contracts • Physical assets : gold, wine, stamps, property • Mortgage advice • Non-investment insurance (includes term assurance, critical illness, health insurances, general and commercial insurances) (which means qualification and adviser charging requirements do not apply to advice on these matters – though other requirements e.g. for advising on and / or dealing in securities has its own additional qualification requirement)

14. What’s the future going to look like? • Firms will be Independent or Restricted (or both?) • Advisers must disclose their status • Product providers may not pay commission • Product providers may facilitate adviser charging (where the agreed cost of advice is deducted from the product) • Legacy commission on pre-RDR policies or investments may continue • Non-advised business (e.g. execution only or discretionary investment management) and non-scope business (mortgages or insurance for example) can still generate commission • Level 4 minimum benchmark qualification • Independent verification of CPD

15. What is Independent? Independent advice is : a personal recommendation to a retail client in relation to a retail investment product where the personal recommendation provided meets the requirements of the rule on independent advice. What is the rule? A firm must not hold itself out to a retail client as acting independently unless the only personal recommendations in relation to retail investment products it offers to that retail client are: (a) based on a comprehensive and fair analysis of the relevant market; and (b) unbiased and unrestricted

16. What does this mean? • Restricted = ANY advice that does not meet Independent standards • Binary choice (no shades of grey!) • Independent advice is assessed at firm level and individual client level • Firms are Independent (or Restricted or may in some business models be both) • Advice is NOT assessed at individual adviser level (as they could in some business models provide both types) “Holding out” and the “ i” word …

17. What about relevant markets? A Relevant Market : • Trustee Investments • Ethical Investments • Annuities & At Retirement advice Special Situations : • Discretionary Fund Managers • Long Term Care • Pension Transfers

18. Professionalism • Level 4 qualification compulsory for all advisers (with gap-fill to top up pre-RDR Level 4 qualifications if necessary) • Application : all retail advisers advising on retail investment products • Examinations : three core areas for all advisers (regulation & ethics, personal taxation, investment principles & risk) • Specialist areas : pensions, securities depend on firm’s permissions, individual authorisation, and advice provided

19. Other issues • Accredited Bodies : listed in FSA Handbook Glossary and updated from time to time • Statement of Professional Standing : issued by Accredited Body to authorised adviser and required by firm as independent verification of meeting Level 4 standard, completing CPD requirement and commitment to Code of Ethics • Continuing Professional Development : 35 hours p.a. of which 21 hours structured, i.e. designed to meet specific learning outcome

20. RDR : what’s the point? • improve the clarity with which firms describe their services to consumers (Independent or Restricted) • address potential for adviser remuneration to distort consumer outcomes(Adviser Charging) • improve the professional standards of investment advisers (Level 4, CPD & SPS)

21. Elizabeth HiggsEthics and Integrity Manager ICAEW Code of Ethics, Part B, Section 241

22. Current approach of the Code • Part B, Section 241 • www.icaew.com/regulations • Referrals only to those who can give objective advice • Independent  • Multi tied ? • Single tied X • Assessment = • Large majority of relevant market; or • Sector of market most suitable for client. • Threats and safeguards approach

23. Future approach of the Code • Guidance awaiting approval, will be effective from 01 01 13 • Retains existing approach • Changes terminology to reflect new binary choice; • Independent – v – restricted. • Independent advisors provide independent advice • across all markets and products; or • all products in the relevant market. • Restricted advisors must, to be referred to • demonstrate appropriateness and • be assessed and either; • place business with a large majority of relevant market; or • sector of market most suitable for client.

24. Considerations for the referring member • Be conscious that client’s circumstances are individual • Be in the best position to make an assessment • If chosen adviser independent then no further assessment • If restricted adviser then assess; • If adviser able to cover large majority of products and providers available in client relevant market. • If so then make the referral • If not, don’t • The arrangements for DPB firms are unchanged • www.icaew.com/regulations for further information and FAQs

25. Participate in today’s webinar – send us a question Q&A – Ask a question Click here to see questions

26. Gillian Cardy, Managing Director, IFA Centre Elizabeth Higgs,Ethics and Integrity Manager, ICAEW Questions

27. Financial Services Faculty… • ICAEW Accredited Body Scheme • 17 September Financial Planning Conference ‘ Life on Mars ‘ *price includes membership of the FS Faculty for 2012 www.icaew.com/fsf www.icaew.com/fsfevents

28. Thank you for attending (call to action) • The recording of the webinar, presentation and FAQ’s will be available shortly at icaew.com/fsf • Copies of the presentation will be emailed to all participants • For more information on Section 241 of the Code and the DPB regime, please refer to the ICAEW website at: www.icaew.com/regulations • Tell us what you think – please let us know how useful you have found this webinar. A survey will be sent to you shortly