Wednesday, 28 November 2012 16:26
Profession is braced for sweeping RDR changes
Staff writer Laura Dew looks at how the financial advice sector is likely to change under the impact of the RDR changes in 2013 and what the SPS deadlines entail.
Of utmost importance at this time for a planner or adviser is the possession of a Statement of Professional Standing, the deadline for applications to the IFP is 30 November. The IFP has already issued over 300 SPSs to those who have chosen it as their Accredited Body and expects to get busier by the deadline. If you are a retail investment adviser and have not yet sent in your application to your accredited body with your gap-fill and qualification evidence then it is vital you do this as soon as possible. The Financial Services Authority has said that any advisers who do not have their SPS in place by 31 December will not be allowed to continue giving retail investment advice. However, there will be 60 days grace for advisers who have applied for their SPS by the deadline but not yet received it due to administrative issues.
Sue Whitbread, communications director at the IFP, said: "We're working really hard to remind members that they have to complete their gap-filling and apply for their SPSs. Many CFPCM professionals still haven't grasped the fact that unless they have a new Level 4 qualification, as well as CFPCM certification, they still need to do gap fill before they can get their SPS."
Not only should advisers focus on the qualification side of the RDR, they also need to ensure they will be able to be paid via their new business model. Graeme Bold, Standard Life UK retail director said: "Many transactions have now been defined as 'advice events', which will trigger the switch off of trail commission on legacy assets. So advisers need to get a plan in place to ensure that their income stream is protected and they are able to continue to meet their clients' interests through the provision of ongoing advice."
David Thompson, managing director of marketing and distribution at AXA Wealth, stressed it was not only clients who would be affected by the payment changes. He said: "Advisers will need to embed their potential new business proposition not only with clients but also with employees. The way that advisers engage with clients may be very different; charging fees and finding 'value-add' business propositions to engage their clients in. All of this requires a different mindset for the business and may take time to adapt to."
He said firms should also focus on questions such as when will providers implement their changes, what will happen to existing products and how will trail commission be impacted?
Another feature to think about is the decision on whether to remain independent or restricted. Many advisers will have strong links with accountants and solicitors and may receive client referrals through them which may have an impact on their decision.
The Solicitors Regulatory Authority is currently consulting on referrals and this will be finalised on 28 November. Previously, the legal profession could only refer to independent financial advisers but this rule has since been relaxed, a move seen as controversial in the legal profession.
In its consultation document, the SRA states its preferred option is to ensure clients are in a position to make informed decisions about referrals in respect of investment advice. It states: "It would place the firm and the client in a position where the firm would need to ensure that the client is involved in the decision process by having sufficient information about the status of the financial adviser, the law firm's relationship with the financial adviser and other pertinent information.
"This would give the client a general understanding of the potential restrictions or otherwise which may result from the recommendation and be placed in a well-informed position and able to make an informed choice. This would mean the lawyer and the client would work out whether an independent or restricted adviser would be the best choice in keeping with outcomes- focused regulation."
Dan Woodruff CFPCM of Woodruff Financial Planning said the relaxed rules meant more focus would be put on specific firms to demonstrate their services met a professional ethos and were of use to the needs of clients being referred. The Institute of Chartered Accountants similarly said accountants could work with independent or restricted advisers but restricted advisers should first be assessed for suitability.
Its guidance stated: "Clients' needs vary on a case by case basis and the client-facing member is in the best position to make the assessment of suitability. If a member refers work to an adviser that meets the FSA definition of independent, no further assessment of suitability will generally be necessary. If it proposed to refer to a restricted adviser, the referring member will need to ensure that the client's needs would be addressed appropriately, including making an assessment that the restricted adviser has demonstrated they are able to cover a large majority of products and providers available in the market that is relevant to the client's needs."
However, while intentions among advisers may be to remain independent, some advisers have expressed concern the FSA may introduce more changes next year which will hinder their ability to remain independent long-term.
Clare Murphy-McGreevey, FSA RDR spokeswoman, said: "We have already published final guidance on being independent and restricted on our website, there are no plans to change the rules. Being a restricted adviser is not a derogatory term. We won't tolerate anyone not stepping up to the plate in this area, they have had more than enough time to get ready."
Ms Whitbread said: "Whether members choose to offer indpendent or restricted advice is a decision for them and their firm to make. It is an area that the IFP is not prescriptive about, preferring instead to focus on the nature of the Financial Planning service that members offer their clients."
I'm a CFPCM professional; surely I'm already qualified?
I'm concerned there may be a small number of CFPCM professionals and Fellows who are not aware they need to complete gap-fill. Even if members are CFPCM professionals, they still need to complete the relevant gap-fill in order to obtain heir SPS. CFPCM certification does not meet the new exam standards in full but is a transitional qualification for the regulated activities of advising on packaged products and advising on Friendly Society tax-exempt policies. Unless a member also holds a new Level 4 qualification then they must complete gap-fill by 31 December. Other advisers aren't aware that if they carry out any specialist areas such as securities, they will also need to do gap-fill for this as well as for advising on packaged products.
What about if I haven't finished my gap-fill yet?
Although the official IFP deadline for gap-fill verification was 30 September, the IFP is continuing to accept gap-fill submissions for verification. However, it cannot guarantee to process them before the end of year deadline. The turnaround time for verification is still within 10 working days at the moment but the workload is expected to get busier as the deadline draws nearer. If members need help with finding suitable gap-filling activities, they can call the Education Team. However, there are no more fast-track gap-fill workshops available.
I've completed my gap-filling, what's the next step?
Financial Planners who have chosen the IFP as their Accredited Body should submit their gap-fill with all the necessary supporting evidence of qualifications and gap-fill activities as soon as possible. It would also help to speed up the process if members submit their SPS application form at the same time which is available from the IFP website. IFP members can obtain their SPSs from the IFP for free.
If I don't have my SPS by 31 December will I still be able to practice as an adviser?
Advisers who have not complied with the RDR professionalism requirements by 31 December 2012 will no longer be able to give retail investment advice. Such an adviser is not permitted to return to being a 'trainee' under supervision in order to become qualified. The adviser's firm must prevent such an adviser from carrying out the activity of a retail investment adviser and to request the FSA's removal of the adviser's CF30 status. If an adviser has met the RDR professionalism requirements and has applied for, but not received, their SPS before 31 December, there is a period of 60 days grace to issue SPSs but this is merely administrative. The adviser will still need to complete any qualifications and gap- fill before 31 December 2012.
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