Qualifications and commission central to Retail Distribution Review

Commission structures and advisers\' qualifications have taken centre stage in the battle over the FSA\'s Retail Distribution Review proposals.

Aifa says that three tiers of adviser is too many for the public to understand. It says ‘financial adviser’ and ‘sales representative’ are all that is needed, with financial advisers offering fee-based advice whether directly or through customer-agreed remuneration (CAR).

The ABI has called on the FSA to introduce a rule that ensures that the adviser’s charges under CAR do not vary by provider to ensure that provider bias is removed. It says a single industry discount rate may be needed to replace indemnity commission to prevent distortions in the funding of adviser payment.

Aifa says the benchmark qualification for new entrant financial advisers should be diploma level while existing advisers should be given a realistic transition period to attain higher qualifications.

Royal London also disagrees with the suggestion in the RDR that Professional Financial Planners would have to attain the full chartered status. It says a diploma in financial planning would be a perfectly adequate base standard, being higher than current requirements and also realistically attainable by most current advisers.

The insurer also believes that the FSA should develop its thinking further in relation to the rules around CAR as this would require product providers to compete on the basis of product quality and innovation and not on the basis of remuneration to advisers.

Royal London’s response also calls on the FSA to consider carefully the impact of indirect benefits or soft commissions. It says this is particularly important as improvements in consumer perceptions of the industry that are anticipated from the widespread introduction of CAR could easily be undermined if even a small minority of businesses are found to be indulging in what would be seen as ‘sharp practices’.

The FSA says a preliminary report will be published before June to give the market an indication of where the review is heading. Publication of a detailed response, taking account of all regulatory implications, will follow in October following further research.

The CII has not said what level of qualification it thinks are appropriate but group chief executive Sandy Scott says: “The CII’s message to the FSA is that if the RDR is to succeed, it must have at its heart a real step change in professionalism. We believe this to be a vital component in any process of change – but we accept it is only part of any package of reform.

John Deane, chief executive of Royal London’s intermediary division says: “We believe that the provider’s costs for all long-term products – including protection – should always be disclosed separately from the costs of distribution. This will help consumers to understand much more clearly what they are paying for. It will also enable consumers to value the services they receive which, in the long-run, should curtail inappropriate remuneration-driven sales and switching of products.