Learning & Development Regulatory Update Round 1 - 2017

Learning Objectives Identify the key changes EU legislation will have on UK regulation Understand the key concerns from the FCA’s Assessing Suitability Review Understand how financial advice will be delivered following the Financial Advice Market Review

Good news

MiFID II – Call Recording No requirement for non-MiFID firms to record calls Confirmation of the call can be evidenced by file notes FCA to feedback what information these notes must contain Sadly not good news for everyone

Not Good News for all All MiFID firms must record calls Firms will be a MiFID firm if they passport into another EU country for collective investments What about Brexit? ‘Firms will need to assess the impact that a changed relationship with Europe and any changes to the regulatory regime have on their business models’

MiFID II – Structured Deposits At this time anyone can advise on structured deposits It is to become designated investment business Simple notification form will add it to your permissions C&TT 193 The reason to do this - INDEPENDENCE

Assessment of Suitability

Assessing Suitability Thematic review carried out in 2016 700 firms contacted circa 1,000 files reviewed Feedback to individual firms only Wider feedback to be reported 2017/18? Further thematic reviews in 2017

Assessing Suitability Not reported wider than to individual firms ‘This letter is confidential and should not be disclosed to a third party in whole or in part without the FCA’s prior written consent’ Of the 28 responses we reviewed there were common themes

Assessing Suitability Disclosure - Common Issues: Use of ranges on fee charges – no specific cost No cash examples for on-going charges Applying a charge to all regular contributions for the initial cost of advice Hourly rate with no indication of how long it will take Tiered charging with incorrect or no examples

Assessing Suitability Adviser charging rules – 2 stages Firms must disclose its specific charging structure. This should include cash examples where the actual amount is not known Disclosure of total adviser charge* *this can be confirmed in the suitability report ‘Suitability report - It is good practice to include the monetary terms of the adviser charge in the suitability report’  

Assessing Suitability Disclosure in suitability report Ensure the report is issued within the correct timescales: For life policies - before it goes on risk For pensions – within 14 days of conclusion For all others – at the time of, or as soon as possible after, the transaction is effected

Assessing Suitability Disclosure – Range of charges i.e. we charge between 2% and 5% of the amount you invest through us This does not give a specific charge A solution would be to use our supplementary declaration

Assessing Suitability Disclosure – cash examples for on-going charges Use our client agreement Use our service proposition & engagement Send both of these with a file request

Assessing Suitability Disclosure – open ended initial charges ‘The initial disclosure uses a charging structure that is not permitted under the RDR rules. It states there is a 3% adviser charge for each regular contribution. The regular contributions are open-ended and hence the total adviser charge cannot be determined and disclosed’  

Assessing Suitability Disclosure – hourly rates Does the firm actually charge an hourly rate i.e. …’or we can charge you an hourly rate of £XXX’ Is it relevant and if so it must give an indication of how long it will take For multiple charging methods consider a standalone agreement for charges

Assessing Suitability Disclosure – Tiered charging structures Always give cash examples for each of the tiers The answer could be £3,500 or £7,500 Up to £100,000 – 3% Up to £300,000 – 2% Over £300,000 – 1%  What is the charge to invest £350,000?  

Assessing Suitability Suitability – Common issues: No factfind on file Reports being too long Not personalised / use of generic text and jargon ‘Know your client - Although there are some details in a file note, a completed, structured and comprehensive fact find/KYC document would help ensure all relevant information is gathered’  

Assessing Suitability Suitability – concerns A switch based solely on the use of FAD in 10 years time Client ATR was 4/10 but stated they had no capacity for loss. Client went into equity funds! Who is providing the advice - adviser or client? Comparison of scheme benefits ‘The adviser has recommended a final salary to SIPP transfer but has not completed a TVAS report. The client has lost a valuable guarantee and opted out of their company scheme without good reason. A transfer should not be recommended without completing a detailed comparison of the two plans’ .   ‘The adviser appears to be distancing himself from the fact that advice and a recommendation has been conducted (and a fee taken) by contradicting himself by stating no advice was given, when it clearly has’   ‘Without details of the scheme benefits and the client’s specific need for flexibility, it is unclear how the adviser could have compared the benefits’  

SimplyBiz Support We have a team qualified and experienced field compliance managers They offer a suite of focused visits around this topic and others, including: Client service reviews Centralised Investment Propositions Positive compliance Individual agreed agendas

FAMR

Financial Advice Market Review Launched in 2015 Report published 2016 containing 28 recommendations Progress report issued April 2017 Guidance consultation published by FCA What do we know?

FAMR - Recommendations Recommendation 2 – The definition of advice From 3rd January 2018 only a personal recommendation will be defined as regulated financial advice Advice will be to buy, sell or hold Important – don’t ignore any products or investments

FAMR - Recommendations Recommendation 3 & 4 – Non-advised & Streamlined advice Discussed in FCA’s guidance consultation These link to automated services

FAMR - Recommendations Recommendation 5 – T&C Individuals now have 48 months to obtain appropriate qualifications Recommendation 8 – Suitability reports APFA have produced a guide to producing suitability reports

Recommendation 10 – the factfind process FAMR Recommendation 10 – the factfind process What types of standard information are required in the factfind? No standardised factfind to be produced Considers the use of technology and portability

Recommendation 13 & 14 – Accessing pension advice FAMR Recommendation 11 & 12 Information within the workplace about financial support and good financial health Recommendation 13 & 14 – Accessing pension advice Employers & employees can each fund £500 tax efficiently towards the cost of advice

Review PII & FSCS funding FAMR Recommendation 20 – Review PII & FSCS funding Response made to this consultation You can review this on the SB website

FCA Business Plan Pension activities/priorities How consumers shop around for pension / retirement income The use of ‘wake up’ packs at retirement How do customers make choices when they do not use an adviser Non-advised drawdown sales

Business Plan – Areas for Review Platform review Unsuitable advice on complex products Wealth managers suitability Feedback on automated advice

Further Updates Partial pension transfers Templates have been updated Equity Release Awaiting statement from FCA re. qualification and permission Continue to consider its suitability

Looking Ahead MiFID II policy statement Insurance Distribution Directive Review of pension transfer rules 4th Money Laundering Directive

Learning Objectives Identify the key changes EU legislation will have on UK regulation Understand the key concerns from the FCA’s Assessing Suitability Review Understand how financial advice will be delivered following the Financial Advice Market Review

ANY QUESTIONS?