Transcript IMA Presentation - Il Salone del Risparmio

The UK’s
“Retail Distribution Review”
Il Salone del Risparmio
18 April 2013
Julie Patterson, Director, Authorised Funds
It covers four areas




Minimum adviser qualifications
Capital requirements for advice firms
Disclosure of nature of advice
Rules on “inducements” paid to or
received by advisers
However, the scope of the review is growing
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When?
New rules on payments to advisers took
effect from 1 January 2013
Rules expected very soon on payments
from product providers to “platforms”
FCA expected to consult on whether the
rules on payments to advisers should be
extended to execution-only brokers,
wealth managers and insurance
companies
First, the “good”….
Covers all types of advice/adviser
Independent = based on a comprehensive
and fair analysis of the relevant market; and
“unbiased and unrestricted”
Restricted = not independent, ie if the
adviser considers products only from a limited
number of product providers or only products
of a certain type
There is also an option of “simplified advice, where
pre-scripted questions are used. But this is still
advice and is still caught by the new rules
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Covers all types of RIPs
Retail Investment Products (“RIPs”) are:
 Life policies
 Funds
 Personal pensions
 Certain closed-ended investment companies
 “Structured capital-at-risk products”
 Other products offering exposure to
underlying financial assets in a packaged
form
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Final rules for Advisers
Must make certain disclosures to the client about
the nature of the service and charges
Cannot solicit or accept commissions (even if
passed to clients)
Must have an appropriate charging structure for
clients
 May not vary according to product type or provider
 May not be influenced by provider “facilitating” payment
May not receive payments spread over time, unless
there is an ongoing service (agreed by the client)
Note: the rules do not apply where the client is
outside the UK
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Final rules for Product Providers
The rules apply even if the retail client is not
a direct client of the product provider
The rules do not apply if the client is outside
the UK
Provider must not offer or pay any form of
commission, remuneration or benefit
And must take reasonable steps to ensure a
clear distinction between product charge
and adviser charge
BUT.....
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Moving to the “bad”…
“Legacy” Investments
The new rules apply:
 only to new investments made after 1 January 2013
 but not if they are additional investments into an existing
product and no new advice has been given
Everything else is “legacy” business and commissions
can continue to be paid ad infinitum
Also, if an insurance product was bought before end2012 and if it allows investors to “switch” between
underlying funds, then these switches are regarded as
legacy (whereas switches between funds bought direct are
subject to the new rules)
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Final rules for Product Providers
A provider can “facilitate” the adviser’s charge for
advice at the point of sale from the investment
and can facilitate ongoing adviser charges “from
the product”, provided it:
 Obtains and validates instructions from the retail client
 Offers sufficient flexibility in the payments it facilitates
 Does not pay out in advance or in a materially different
way from what the client has agreed
And there is an exemption for regular contribution
products, including eg saving plans into funds
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Further rules imminent…
 Payments to “platforms” – the FCA proposes to
stop payments out of product charges or by
product providers
 “Rebates” of fund charges in cash – the FCA
wants to stop routine AMC rebates (ie
retrocessions), even if they go to the investor
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What this will mean for funds
Investor will
have to pay into
cash account so
that adviser can
be paid
INVESTOR
ADVISER
Investments via
platform account
Client cash
account
FUND SUPERMARKET
Platform
invests
in fund
Fund Manager does not know
investor and “rebates” banned, so
adviser charge cannot efficiently
be facilitated
FUND
(a new share
class with
lower AMC)
FUND MANAGER
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What about life/bank wrapped funds?
Bank and insurance products are caught by the same rules,
but they can “facilitate” payments to advisers by reducing
the value of the policy/investment
ADVISER
INVESTOR
Platform facilitates payment to
adviser, subject to agreement between
adviser and client, by reducing the
amount of the insurance contract
LIFE/BANK PLATFORM
Platform invests
in life and
structured products
Client cash
account
Adviser charge facilitated via
life or bank product
LIFE COMPANY/BANK
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…and the insurer/bank can continue to negotiate
rebates/retrocessions with fund managers
ADVISER
INVESTOR
Platform facilitates payment to
adviser, subject to agreement between
adviser and client, by reducing the
amount of the insurance contract
Client cash
account
LIFE/BANK PLATFORM
Platform invests
in life and
structured products
Adviser charge facilitated via
life or bank product
LIFE COMPANY/BANK
Rebated AMC
FUND
Life Company/Bank
issues a product backed
by its holdings of fund
units, which it buys at a
cheaper AMC
FUND MANAGER
Life Company/Bank invests in fund as principle
(i.e. it is the beneficial owner of the fund units).
Therefore, rebate of AMC can be negotiated ,as
adviser charging rules do not apply
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So, yet further FCA proposals…
The FCA accepted that investors ought to be able
to benefit from lower product “prices” negotiated
by wholesale purchasers such as platforms
But it believes a client cash account (with
payments in and out in real money) would be
confusing for investors
Therefore, it proposed a system of “unit rebates”
instead
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Which takes us to the ”ugly”
With unit rebates
6. Cash proceeds from
unit redemptions used
to pay adviser charge
INVESTOR
1.
Investments
via platform
account
ADVISER
4. Rebate must be
used to buy extra units
FUND SUPERMARKET
5. Extra units
purchased. But
also, units
redeemed to
pay adviser
charge
2. Platform
invests
in fund
3. Platform (as a bulk
buyer) is able to
negotiate an AMC
rebate
FUND MANAGER
FUND
AMC
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What’s happening?
Platforms began to install systems to offer “unit
rebates” (having previously installed systems to
operate client cash accounts)
We still do not know for certain how platforms are
to be paid
Meanwhile, HMRC have decided that any form of
rebates to investors (whether in cash or in units)
are taxable, including from legacy investments
Therefore, IMA continues in intensive
dialogue with both the FCA and HMRC!
And so to Europe…
The impact on non-UK UCITS?
The FSA cannot impose requirements on
non-UK UCITS or management companies
But the rules apply to UK advisers selling
non-UK UCITS
Therefore, UK advisers cannot receive
manager-determined retrocessions from
EU UCITS
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The proposed ban on inducements only to
independent advisers will have widely different
effects around Europe
Note: much of the IFA business in the UK now
comes through B2B platforms