The new IFA professionalism rules
Ahead of the implementation of the Retail Distribution Review (RDR) at the end of next year, the FSA has this morning published a Policy Statement describing the new professionalism requirements for all financial advisers.
In PS11/01, the FSA confirms that all financial advisers will be required to hold a Statement of Professional Standing (SPS) by the end of next year, if they want to continue providing investment advice.
This SPS will be issued by accredited professional bodies, such as the Personal Finance Society or Institute of Financial Planning.
It will give consumers of financial advice evidence that their adviser subscribes to a code of ethics, is properly qualified, and has kept their knowledge up to date.
Much like a practising certificate for a solicitor, the Statement of Professional Standing for IFAs will need to be renewed annually.
Continuing Professional Development
One of the requirements to receive a renewed Statement of Professional Standing each year will be a minimum amount of annual Continuing Professional Development (CPD).
Under current rules, there is no minimum regulatory requirement for a set number of hours of CPD each year. Some of the professional bodies have stricter rules for their professionally qualified members, for example for Chartered Financial Planners and Certified Financial Planner (CFP) professionals.
The new requirements will mean that investment advisers must undertake a minimum of 35 hours a year of CPD. Of this, at least 21 hours each year must be ‘structured’, by which the FSA means attendance at relevant workshops, courses and seminars.
Research from the FSA suggests that 30% of IFAs are not currently meeting this new minimum standard of CPD, but for the majority it will effectively mean formalising their existing CPD activity each year.
A more serious approach
Whilst these new requirements do not come into force until 1st January 2013, from this July firms will need to start notifying the FSA if any of their advisers fall below the required standard of competence or ethical behaviour.
Reading through the 126-page Policy Statement this morning, it is clear that the core message from the FSA is that all financial advisers have to start taking their professionalism responsibilities more seriously.
It will no longer be possible for an adviser to ‘dabble’ in the provision of investment advice to consumers. This is a really positive move and should help to raise overall standards within the profession.
Outcomes for different participants
Within the Policy Statement there is a really useful table on page 40 which sets out the intended outcomes of these new rules for each participant in the retail financial services market.
Consumers should be able to have a greater degree of trust in the sector as a result of these new rules.
They will be encouraged to check the Statement of Professional Standing for their new or existing adviser to make sure they live up to the required standards. They will also have recourse to the accredited professional body, should the adviser behave unprofessionally.
Individual advisers will be more accountable as a result of these new rules. They will need to make an annual declaration to their accredited professional body and will need to invest more of their personal capital in reaching and maintaining professional standards.
Accredited bodies will have a key role in raising standards. They will be subject to an annual independent audit and ongoing FSA monitoring to ensure they maintain standards for their members.
In addition to benefiting from better quality advisers, firms will need to monitor their advisers more closely for fitness and propriety. The FSA will have more of a focus on individual advisers and their standards of professional behaviour.
We welcome this Policy Statement from the FSA. It provides much needed clarity on the subject of professional standards and we believe that the new rules, once implemented, will benefit all consumers.
Absolute clarity about qualification, CPD and professional standing requirements was desperately needed. The publication of this paper will enable those advisers who have not already made progress towards reaching the new standards to now get on with the task in hand.
There is nothing in this paper that should deter a good financial adviser from continuing in this profession. However, this paper will lead to much higher standards for all consumers of financial and investment advice.
You can read the Policy Statement in full here.