T&C CPD Networker

1. T&C CPD Networker 26 April 2012 LONDON

2. Countdown 250 There are 250 days left to comply with the FSA RDR requirements

3. Preparation is key • Preparing your advisers • Preparing your firm • Preparing your customers

4. Preparing your advisers - qualifications • There are 250 days left BUT • Last sitting of RO6 to ensure re-sit available is 15 Oct • This reduces days available to 172 • The number of recommended hours to complete RO1-RO6 is 370 hours (or 52 x 7 hour days) • There are only 25 weekends between now and 15 October • The deadline for AFA registration through IFS has passed to guarantee results by 31/12 has passed • CII Pass Rates approx 60% CISI 43%-80% • 50% of all RIAs already hold at least one Appropriate Qualification

5. Actions • What actions could you be taking to ensure that your advisers pass the qualifications in time?

6. Try a pulse check • Determine the views of your advisers, and others in how they are progressing • There are more aspects to RDR than just qualifications • Can provide an early warning if things are not quite going to plan.

7. What questions/ statements could you include I a pulse check?

8. SPS Applications • CII has asked for applications by 1 October. • CII turn round is up to 60 days. • CII verify gap fill first, you then apply for SPS – 7 day turnround • CISI deadline is 31 October • Remember the 60 days of grace from 31 December is for the Accredited Bodies not for you

9. Gap Fill and CPD evidence • Gap fill – issues over quality of completion • CPD – needed in most cases if you are applying for a full SPS • CISI – you may need to alter your CPD year

10. SPS Applications - CII • Insufficient Evidence – The evidence provided for a learning point does not give enough detail about the CPD activity undertaken • Incorrect/missing attachment – The evidence against a learning point refers to an attachment that is either missing or does not appear to correspond with the activity description and/or learning point • Evidence does not relate to gap – the evidence provided does not appear to correspond with the learning point it is recorded against

11. SPS Applications -CISI • Declaration not confirmed • CPD year not passed yet full SPS applied for • SPS submitted outside CPD month window • Gap fill containing unsuitable CPD submitted as gap fill • Gap fill not completed fully (or at all) • Applicants stating that they have submitted gap fill to the CISI via the CISI gap fill log, when has not been submitted CISI RDR Implementation Guide CISI 2012.

12. SPS Preparatory Actions • What actions can you take to ensure that SPS’s are completed accurately and submitted on time?

13. CPD Requirements • be relevant to the retail investment adviser’s current role and any anticipated changes to that role; • maintain the retail investment adviser’s knowledge by reference to current qualification standards relevant to the retail investment adviser’s role; • contribute to the retail investment adviser’s professional skill and knowledge; • address any identified gaps in the retail investment adviser’s technical knowledge; • have written learning objectives based on learning needs and a documented learning outcome; • be measurable and capable of being independently verified by an accredited body.

14. CPD • 2.1.23 G Continuing professional development completed by a retail investment adviser in relation to activities other than acting as a retail investment adviser should not be taken into account for the purposes of TC 2.1.15R unless it is also relevant to the activity of acting as a retail investment adviser.

15. CPD – Types of activity • 2.1.20Examples of structured continuing professional development activities include participating in courses, seminars, lectures, conferences, workshops, web-based seminars or e-learning which require a contribution of thirty minutes or more. • 2.1.21Examples of unstructured continuing professional development activities include: • conducting research relevant to the individual’s role; • reading industry or other relevant material; • participating in professional development coaching or mentoring sessions.

17. Complying with APER • What exactly is an adviser confirming when they sign a declaration stating that they are complying with the code of practise?

18. APER - Ensuring compliance • What steps do you take to ensure that advisers are complying with APER?

19. Preparing you firm • Independent or Restricted? • Adviser charging

20. Independent or Restricted? • RDR is expected to further encourage IFAs to outsource parts of the investment advice process, especially fund selection activities, to discretionary managers. Just over ¼ have already outsourced to a discretionary manager. • RDR may increase existing competitive pressures from alternative savings and investment providers as IFAs expand their range of investment products considered in their recommendations to clients • Past research indicates that advisers rely on recommendations from other professional services rather than directly compete with each other

21. Independent or restricted • Approximately 85% of financial advisers now use platforms • Advisers may not adequately consider the suitability of the overall investment solution for individual consumers instead adopting a ‘one size fits all’ approach • Independent advisers may consider the platform as the default option and inadequately consider the whole of the market when advising individual clients • Disclosure standards adopted by platform service operators, particularly for charges may not always provide a clear or complete description of the total costs involved

22. Independent or restricted • For firms moving to restricted advice, have you considered what you’ll do about those clients whose needs cannot be met by the scope of your restriction? • How will your existing systems and support functions deliver your new service proposition? • If your firm will offer a mix of independent and restricted advice, have you considered how it will market itself? • Have you considered what controls you will put in place to ensure that advisers provide a service consistent with that disclosed?

23. Independent or restricted • If you are going to describe your firm as independent, what do you need to do to ensure that your firm considers all the retail investment products that may be suitable for clients every time a personal recommendation is made • How will you ensure sufficient research is undertaken to support recommendations? • If you are offering restricted advice, how will you explain the nature of this restriction? • If you are planning to use a panel of products to assist you in giving advice, how frequently will you review this panel? What guidance will you provide advisers that wish to go off panel?

24. Adviser Charging • Majority of financial advisers hold permissions to conduct business in financial advice, and mortgage and general insurance mediation, but an increasing proportion of their income is currently generated from general insurance. • Developing an adviser charging proposition that will add value and strength to their brand remains an ongoing challenge for financial advisers • Financial advisers compete on quality of service and access to products, more than price

25. Adviser Charging • FSA aware that some firms may select to maximise their recurring revenue streams ahead of the RDR. FSA noted their concern that in some cases firms may do this in ways that produce poor outcomes for consumers • RDR addresses potential commission bias. Sales bias is likely to persist where adviser charges contingent on a product sale or where charges are paid for ongoing advice regardless whether or not products are sold • The requirement to provide an ongoing service to justify ongoing fees may incentivise firms to move to portfolio advice or discretionary management services and inappropriately make more transactions on the account than necessary

26. Adviser charging • Provider influence – providers may offer other incentives to advisers such as business or consultancy services, although inducement rules should mitigate this. • Change in business models will strain Compliance functions. • Firms should ensure that their systems and controls, including competence of employees, keep pace with any changes in their strategy and business model, and with any new services the firm is offering

27. Adviser charging • Will you charge an hourly rate, a fixed fee, a percentage of assets under management, ad hoc charges or a mixture of all? • Have you reviewed your back office systems to see if they can be used to help with the changes with the new charging structure? • Have you considered how you will collect and record fees from clients in the new charging model? • Have you considered what changes you will make to your disclosure documents and, if applicable, the fee agreement?

28. Adviser charging • What impact will the different models have on your revenues and your clients, both in the short and longer term? • If required, will the providers/products you are likely to recommend offer facilitation services? • How will you describe your services to clients so that they are clearly understood?

29. Changes to T&C schemes • An SPS does not state which TC activities the adviser is authorised to undertake. T&C schemes, job descriptions and authorisation letters will cover off the activities that can be undertaken. • Do you know the critical mass required of advisers without which your service offering is compromised? • What plans do you have to replace exiting advisers? • What plans do you have to help retain advisers? • Given the timescales to train an inexperienced new entrant to competence what additional supervisory resource might you require?

30. Other T&C changes • Notification procedures became effective July 2011 • Supervisors expected to have coaching and assessment skills, technical knowledge and experience to act as a competent supervisor and assessor • CPD process for long term absence • SPS renewal processes- firm expected to ensure advisers confirm in writing re APER and CPD

31. FSA Reporting requirements • To be supplied within 20 business days of the end of the quarter • Report periods begin 1 January – so first report due in April 2013 • No report needed if no changes since previous report • Firms can submit more frequently if required

32. Report content • The firm’s name and FSA firm reference number • The names and FSA Individual Reference Numbers of the firm’s employees who are retail investment advisers including trainees • Whether a retail investment adviser has attained an appropriate qualification • If a retail investment adviser has not attained an appropriate qualification, the date on which the employee began to carry out the activity of a retail investment adviser • The name of the accredited body • Must be submitted electronically in format specified in TC Appendix 8R

33. RMAR changes • FSA require detail in respect of revenue from adviser charging • Split between Initial and Ongoing • Split between Independent and Restricted • Broken down to show • Charges received directly from retail clients • Adviser charges received via product providers • Adviser charges received via platform service providers • Lump sum payments and instalments

34. RMAR Section G changes • Add a new category called ‘Independent’ • Change ‘Multi Tie’ to ‘Restricted – limited number of providers’ • Change ‘Single Tie’ – Restricted – The products of one provider • Add a third category which is ‘restricted’ - limited types of products

35. Review Key Performance Indicators • In light of information provided to FSA are you planning to change the KPIs you use? • For those clients that expect an annual review are you going to track reviews undertaken?

36. Complaints • Firms will be required to breakdown their current regular complaints reporting data to the level of individual advisers detailing • The number of complaintsthe number of complaints upheldthe amount of redress paid in the firm’s last reporting period

37. Complaints extra • FSA to be alerted when adviser subject to 3 upheld complaints in 12 month period • FSA to be alerted where redress is paid of £50000 or more

38. Where the FSA has concerns • Business strategies and people strategies not linked • Associated risks not being identified and managed? • Firms not making enough of competence issues to identify risks

39. FSA examples of concerns • Firms must have a very clear understanding of what they expect from employees. • Clear standards of competence for roles • Employees to know the boundaries of their roles • Risks from losing key individuals • How firms identify general knowledge and skills gaps sourced to a change in strategy

40. Preparation • Key actions for firms? • Key actions to prepare employees? • Skills audit? • Key components of a communication programme?

41. Preparing your customers • How ready are your customers for the changes?

42. Communicating with customers • Consumers regard cultures, in particular in banks, as shifting from a more personalised service to a retail shop where the focus is on selling • There is a sense that financial services are more interested in new business than their existing customers and there are frustrations at the apparent lack of recognition of loyalty where special offers are only available to new customers. • When banks decide to grow their wealth management business, that they have continued regard to their Treating Customer Fairly obligations

43. Communicating with customers • Have you considered discussing your proposed charging structure with clients to seek their views and start to develop clients’ understanding of the changes ahead? • Will you stop offering advice to some clients and, if so, how will you manage to ensure that you are treating customers fairly? • Ensure customers aware that this is an industry initiative not just one taken by your own firm