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RDR loophole could signal flock to corporate advice
19 August 2010
A loophole in the FSA's retail distribution review process may allow IFAs to continue advising after the 2012 deadline without obtaining a QCF level four qualification. Peter Williams, head of industry development for Aegon UK, discovered the apparent anomaly that has arisen because corporate advisers only advise employers at scheme level, rather than giving individual member advice. This means that corporate IFAs, as a result, do not have to comply with requirements post-2012. He has confirmed this with the FSA and now believes pension advisers will make the switch to corporate advice to avoid the time and money needed to qualify to meet the strict RDR standard. This move is potentially more lucrative as many employers move towards workplace savings, involving a range of products including Isas, as part of the drive to encourage pensions and savings among workers. Mr Williams said: "There is obviously a loophole here and I think many advisers will make the most of it by making the switch to corporate advice. Because they are dealing with companies and not retail investors they are not covered by the qualification requirements of the RDR, even though the FSA requires this sector of the market to adopt a form of adviser charging: consultancy charging. "The switch will be easier for advisers who have been dealing with pensions as that will naturally be an area of growth with the government’s plans for auto-enrolment just around the coroner. However, he said the inconsistency is likely to be short-lived as the consumer lobby would bring pressure on the new regulators to take a firmer stance over professionalism among corporate pension advisers post-RDR. The Chartered Insurance Institute has already predicted this trend of corporate advisers being eventually forced to meet QCF level four standards and recently introduced a diploma in financial planning that meets the RDR requirements. Fay Goddard, chief executive for the Personal Finance Society, called for the FSA to distribute clear guidance on the issue to avoid problems. She said: "The FSA needs to make clear what is regulated advice and what is not and therefore whether the adviser needs to be qualified at level four or not. However, this is a specialised area and it seems unlikely that many advisers would seek to capitalise on the situation. Our data shows significant momentum towards the level four qualification." Joss Harwood, director of County Durham-based Eldon Financial Planning, warned that IFAs who choose to exploit the loophole may feel the wrath of the FSA. She said: "There will always be advisers and employers who seek to exploit weaknesses in the system. "I would hope that employers who have their colleagues' interests at heart will understand the difference between those IFAs who commit to their clients by evidencing appropriate knowledge and expertise, and those who do not. I am sure the FSA and the financial press will help in highlighting the corner-cutters." Published by FTAdviser
