RDR disclosure: More precision please |
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| Strategic Finance | |
| Written by Gary Howes | |
| Thursday, 02 July 2009 | |
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Disclosure requirements for restricted advice do not go far enough.
The disclosure requirements proposed for restricted advice in the latest Retail Distribution Review (RDR) consultation paper need to go further and require firms to use a mandatory form of words in their initial disclosure information, says Skandia. Skandia believes that the FSA should mandate a precise form of words that firms must use in their documentation to describe the services they provide in order to ensure consistency across different firms and deliver clarity for consumers. However the firm has welcomed the distinction that the FSA is proposing to make between independent and restricted advice and agrees that short, one sentence descriptors that compliment these labels will help consumer understanding of the advice being provided. What the latest RDR consultation paper saysConsultation paper 09/18, Distribution of retail investments: Delivering the RDR, proposes that firms offering restricted advice will be required to provide oral disclosure using a specific form of words that will include the name of the firm they work for and the range of products they advise on. This requirement should be extended to the formal initial disclosure documentation given to the customer to take away and read in detail to ensure the disclosure is consistent across each case. Verbal disclosure can not be monitored effectively. Skandia also believes that basic advice should be phased out because it is unlikely that it will be clear to consumers how this is different from a simplified advice process. Basic advice does not include a full assessment of a consumer's individual needs and so increases the risk of an inappropriate outcome for the consumer. A simplified advice process that is clearly explained, involves adviser charging and requires the adviser to hold minimum levels of qualifications can better service consumers than basic advice. Skandia welcomes the proposal for professional standards and adviser charging to be consistent across the entire advice channel. Peter Mann, chief development officer at Skandia, comments:“The detail in the latest RDR consultation paper will provide plenty of food for thought but the headline proposals are sensible and provide the industry with a significant opportunity to improve outcomes for consumers. The distinction between independent and restricted advice provides plenty of opportunity for each type of adviser to clearly differentiate their offerings, with independent financial advisers continuing to offer the most valuable service to consumers. “There are still many issues that will need to be ironed out, particularly the disclosure requirements for the various types of advice. If consumers are ever going to understand the differences between independent and restricted advice we need formal sets of disclosure statements that are consistent across firms in each category and provided in writing to consumers. This will greatly reduce the risk of a consumer thinking they have received full independent advice when in fact they have not.”
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