In a survey examining industry reaction to the guidance consultation, which was issued at the beginning of April, TCC found that over half of respondents were "not sure" or did not think their firm had appreciated the impact of the FSA guidance.
"Whether the impact comes from the replacement business guidance or from the centralised investment proposition guidance, the truth is most firms will need to review what they have done in the past to check that business conforms to this new view from the FSA," TCC explained.
Old systems no longer fly
Subjective reasons previously contributing towards the decision to recommend a replacement product will not be enough.
These include:
- Online access via a platform
- Consolidation of assets onto a platform
- Changed risk attitude
- Move to better funds
- Move to rebalancing funds will reduce risk
"They are all secondary to the retail test which must be whether the transfer is objectively in the interests of the consumer and whether the replacement product will better allow for an outcome which matches the consumers stated requirements," the white paper continued.
TCC believes it is this simple and obvious requirement which makes this guidance potentially so devastating and why it should serve as a red alert for adviser firms.
New systems to show compliance
Any new test will have to cover:
- The costs of the new vehicle versus the old vehicle
- The performance of the new investment fund versus the old investment fund
- The tax treatment of the new vehicle versus the old vehicle
For this many businesses will have to change their systems to ensure they can back up with documentation a detailed cost review and justification of one fund’s likelihood of outperforming another.
Ian Stott, client services director at The Consulting Consortium, said: "The results of our research suggest a worrying disconnect between businesses’ understanding of the FSA guidelines adn how these are being interpreted.
"About 40% believe the advice is clear, but many have not interpreted the guidance correctly and now they have to backtrack, which is keeping us busy. The other 60% aren’t clear about what it is they need to be doing," he concluded.
For access to TCC’s white paper on the FSA Guidance Consultation, click here.
