Pro­posed reg­u­la­tions aim to make ad­vice fairer

Weekend Argus (Saturday Edition) - - GOODPUZZLES -

The Fi­nan­cial Ser­vices Board (FSB) is car­ry­ing out a Re­tail Dis­tri­bu­tion Re­view (RDR) to en­sure that fi­nan­cial prod­ucts and ad­vice are fairer and to min­imise con­flicts of interest be­tween con­sumers and prod­uct providers.

One of the RDR pro­pos­als is that prod­uct providers should no longer pay com­mis­sion to fi­nan­cial ad­vis­ers on in­vest­ments; in­stead, ad­vis­ers should charge fees for their ser­vices.

Cur­rently, only one in three ad­vis­ers charges fees, ac­cord­ing to re­search by Mast­head, a com­pany that as­sists in­de­pen­dent fi­nan­cial ad­vis­ers with com­pli­ance.

Ian Mid­dle­ton, the man­ag­ing di­rec­tor of Mast­head, says you need to be aware of this prospec­tive change, so that, when the time comes, you are pre­pared to pay fees in lieu of com­mis­sion. Since com­mis­sion is a less ob­vi­ous form of re­mu­ner­a­tion, you may be un­der the mis­taken im­pres­sion that the ad­vice you are re­ceiv­ing is free.

Mid­dle­ton says ad­vis­ers need to com­mu­ni­cate the value you will re­ceive for the fees you pay. When you see that prom­ise ful­filled, you will be as com­fort­able pay­ing for fi­nan­cial ad­vice as you are for any other ser­vice, he says.

An­other RDR pro­posal is to com­pel ad­vis­ers to de­clare whether they are “tied” agents (agents of fi­nan­cial prod­uct sup­pli­ers), or li­censed ad­vis­ers in their own right, who may be sole pro­pri­etors, or rep­re­sen­ta­tives of li­censed ad­vi­sory firms that are not also prod­uct sup­pli­ers.

Orig­i­nally, the FSB pro­posed to cat­e­gorise fi­nan­cial ad­vis­ers based on the range of prod­ucts they of­fer, but it has since been per­suaded that free­dom from prod­uct-sup­plier in­flu­ence is a more mean­ing­ful de­ter­mi­nant of in­de­pen­dence than the range of prod­ucts the ad­viser of­fers.

Although the FSB has pro­posed that tied agents be per­mit­ted to rep­re­sent a sin­gle sup­plier, it is con­sid­er­ing im­ple­ment­ing a model used in In­dia, where a tied ad­viser is able to act as the agent of one prod­uct sup­plier per line of busi­ness: for ex­am­ple, one prod­uct sup­plier for long-term risk prod­ucts, an­other for short-term in­sur­ance prod­ucts, an­other for savings and in­vest­ment prod­ucts, and so on.

The FSB is con­sid­er­ing al­low­ing “reg­is­tered fi­nan­cial plan­ners” to have the right to call them­selves in­de­pen­dent ad­vis­ers, as long as no bin­der agree­ment, prod­uct-tar­get ar­range­ments, or own­er­ship ar­range­ments ex­ist be­tween the ad­viser and the prod­uct provider.

The RDR pro­pos­als will be im­ple­mented in phases. Revised drafts of the first pro­pos­als were due to be pub­lished for com­ment in April this year, with the changes com­ing into ef­fect in the se­cond half of the year. How­ever, th­ese dead­lines have been pushed out to co­in­cide with other leg­isla­tive changes, and the FSB is now tar­get­ing Jan­uary 2017 on­wards. Con­sul­ta­tion on the de­tails of the changes will be­gin within the next few weeks, the FSB says. – Staff Re­porter

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