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Masthead’s response to FSB’s update on RDR Developments

Author: Ian Middleton, Managing Director at Masthead   

Posted on 10 Nov 2015

As we’ve previously communicated, the FSB set up a steering committee and 6 workstreams to consult more on what should be implemented and how it should be done. Masthead is represented on the steering committee plus 4 of the workstreams. So, we look to play a close and active part, and to date we have been encouraged by the engagement and willingness of the FSB to look at the impacts of the proposals and to consider alternatives.

The FSB’s immediate focus is to concentrate on “advisor categorisation” (that’s what advisors can call themselves) and the points that were identified as being in Phase I, which was initially scheduled to be introduced before the end of 2015. But, this has been delayed and we can expect to see changes closer to the middle of 2016.

Some specific issues we would like to highlight:


The FSB acknowledges that the 3 labels in the RDR document (tied, multi-tied and IFA) can be confusing and will not necessarily help customers understand the status of the person giving the advice. So, there is still work to do here and we may end up seeing only 2 labels. In our feedback to the regulators we suggested a simple categorisation and we will continue to drive this message at the appropriate regulatory forums. The FSB also stated that, for purposes of looking at status/independence, they will focus more on the level of influence or control rather than the number of providers that the advisor deals with.


The FSB shares advisors’ concerns that the threat of cancelling broking contracts due (only) to low production creates a conflict and therefore effectively creates an implicit production target. They want to ban production targets outright with regard to “untied” advisors. As part of this issue, the FSB wants to find a way to enable advisors whose contracts are terminated due to low production to be able to offer reasonable ongoing customer service and earn ongoing contracted remuneration. We have raised this issue over a long period of time and in a number of forums and we have consistently called for a solution in this space. We are therefore very pleased to see this enjoying attention.


The FSB intends to go ahead with the proposal that insurer tied advisors may no longer provide advice on another insurer’s products.


Initially the FSB proposed to prevent a rep from being on 2 (or more) FSP licences. They are now proposing to change this so that a rep can be on 2 licences if the product categories for the 2 licences are different – e.g. one FSP does long-term insurance (life & disability) and investments and the other does short-term insurance. While we welcome this change, which supports the concerns we raised in our initial feedback to the FSB, we still think that the new proposal may be too restrictive and will engage further.


This is a new proposal that suggests that the same legal entity will not be allowed to hold more than one FSP licence. We will provide input on this as soon as we have more information and clarity.


The FSB is concerned about KIs being able to perform their KI functions. In line with this, they are looking to tighten the fit & proper operational requirements and supervision of KIs to prevent “rent a KI” models.


In the RDR paper the FSB proposed to ban commission on replacement life risk policies. They will do nothing at the moment, but they do want to make sure that any change is aligned with the implementation of standards related to advice fees. So, this piece is deferred to a later stage. But, in the meantime, the FSB will impose strict monitoring and reporting obligations on insurers – they are also going to make sure that certain requirements are met before insurers can pay upfront commission on a replaced policy. We still believe that one should not view all replacements in the same way – there are clearly bad ones, but there also ones that are appropriate and in the best interest of customers. We therefore welcome the focus from the FSB and also the decision not to proceed at this stage with a ban on commission.


The FSB is becoming increasingly concerned about abuses in the tied advisor ranks, particularly since they banned sign-on bonuses. They are therefore pushing forward with a review. As a start they are likely to focus on a bunch of non-cash incentives, like overseas trips, paying-off advisor debts, share options, lump sums paid as retention bonuses, restraints of trade and/or similar arrangements. They are also likely to “name and shame”.


The FSB is committed to as-and-when remuneration for selling and servicing short-term insurance policies. They do however want to do away with the s8(5) fee (broker fee) and replace it with advice fees.

The FSB has indicated that they will release an RDR Phase 1 update document in the next two weeks and will call for feedback and consultation on some specific issues. You can be assured that Masthead will scrutinise the content and look to understand the impacts on the advisor community, particularly IFAs and will keep you informed.

Click here to view the FSB’s presentation


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