The Retail Distribution Review (RDR) proposed by the Financial Services Authority (FSA) has pushed through a
radical change to the regulatory landscape for the provision of financial advice in the UK.
The move towards truly independent advice and the abolishing of commission and trailing fees involves a significant number of changes to processes and systems. It will require independent advisors to get qualifications and remove the system of commissions paid to advisors by companies.
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"Clearly RDR is an extremely important development for the wealth management and private banking industry. It will continue to shape business models and client propositions for some time to come.
Some firms have successfully adapted to the RDR, others are not as advanced on that journey", says David Bryden, technical specialist at Financial Conduct Authority (FCA).
Bryden also underlines that in the past there was scope for ambiguity, for example, where obligations between different service providers in delivering a service to a single client, were unclear.
"The RDR is clearly intended to improve disclosure to clients so they have an easy way to understand what they are paying for, who they are paying and the services they are receiving," he adds.
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By GlobalDataWith a new wealth management and private banking department set up by the
FCA, there will be more focus on firms’ business models, strategies, culture and front-line processes, rather than on controls.
"The creation of a supervisory department dedicated to wealth management and private banking has been well received by the firms and the various associations that represent them. There have been some feelings in the past among them that they’ve rather been misunderstood or neglected. Part of the reason why we have institutionalised
this focus on wealth management at the FCA is to make sure the industry will neither feel misunderstood or neglected as we go forward", says Bob Ferguson, head of wealth management at FCA.
The ball’s in your court
Ferguson says he expects regulation to be overlooking and judgement based in the future. This will play out both in thematic work and in the supervision of individual firms, he says.
Ferguson expects that regulators will keep focusing on the suitability of investments advice and discretionary decisions in the context of portfolio management. "We will be quite focused on what firms will be actually doing against what they claim to be doing when they are describing their services to existing and potential customers. If firms are offering a genuinely bespoke service then we expect to see whether they are really doing that", notes
Ferguson.
According to Ferguson, another core focus for supervision in the future will be on the culture within private banking and wealth management firms. Culture will be under the spotlight in order to ensure that firms have the interests of their customers at the heart of how they run their businesses.
When talking about the integrity of the financial systems, there will be focus on wealth managers’ AML due diligence the effectiveness of their enquiries into where their customers’ wealth comes from.
For larger firms, FCA will supervise through individualised programmes.
"In addition to the thematic work, which is a very powerful tool, firms will be getting individualised supervisory assessments, which will be determined by the size, nature and complexity of the firm", Ferguson explains.
"For example, if a firm tells us that it has aggressive expansion plans, then we would want to know how that expansion will be carried out; whether it will be carried on without excessive risk to its clients.
And we would want evidence of what sort of revenue, asset or product targeting is envisaged and what risk management tools are being put in place in order to realise the ambitious expansion plans", he concludes.
