Better regulatory protection for investors

The Financial Services Authority (FSA) has published a consultation paper (CP11/08: Data Collection: Retail Mediation Activities Return and complaints data) making proposals for more robust data collection from authorised firms.

The proposed changes include collecting information about remuneration and complaints data for individual advisers.

Historically, the FSA has carried out this important data collection at firm level. This provides them with useful management information which can help them to identify problems in the retail financial services sector, but does not offer much in the way of monitoring of individual adviser activity.

If an individual financial adviser regularly changes firms, there is a risk that they could leave behind them a trail of excessive charging and complaints about advice or service, without the FSA able to see a pattern emerging.

One of the aims of the Retail Distribution Review (RDR), which is being fully implemented at the end of next year, is to shift more of a regulatory focus onto individual advisers.

Part of this shift of focus is the need for each individual adviser (known as an Approved Person) to hold a Statement of Professional Standing from their accredited professional body.

This Statement of Professional Standing will need to be renewed annually to ensure the Approved Person has remained up to date with their training and competence, in the form of professional examinations and Continuing Professional Development (CPD).

The new data collection proposals, when they come into force, should enable the FSA to better understand the behaviour of individual advisers. One of the stated aims of the move to gather data about adviser remuneration is to look for examples of customer charges which are too high or too low.

The need to look for excessive levels of adviser charging is fairly self-explanatory.

The FSA want to make sure that investors are not being overcharged for the services they receive. They will also want to ensure that investors are actually receiving a service in return for the charges they pay.

The reason for looking at low adviser charges is a little less obvious. It appears that the FSA wants to make sure that adviser charges are not ‘hidden’ within higher product charges.

There is a real danger that banks and other tied advisers will attempt to mask the level of adviser charges by loading the cost of the products they distribute.

These latest proposals from the FSA are not perfect.

We will be digesting the consultation paper over the coming weeks and then writing to the FSA with a considered response, highlighting those proposals where there is room for improvement to better reflect the realities of data collection within small regulated firms.

What the proposals do signal is better regulatory protection for investors, with individual financial advisers subject to greater levels of scrutiny over the amounts they charge and the quality of service they deliver.

Photo credit: Flickr/Yoshimai