Retail Distribution Review

In June 2006, UK FSA launched the Retail Distribution Review (RDR), looking at how investments are distributed to retail consumers in the UK. Through the review, they identified various long-running problems that impact on the quality of advice and consumer outcomes, as well as confidence and trust, in the UK investment market. Following extensive discussion with industry and consumer representatives, they are now proposing amendments to regulatory requirements to deliver various changes.

FSA's proposals involve:

Improving clarity for consumers about advice services

• They are proposing changes to make it easier for consumers to distinguish between the different forms of advice on offer to them, with all investment firms clearly describing their services as either "independent advice" or "restricted advice". Their rules and guidance will ensure that firms that describe their advice as independent genuinely do make their recommendations based on comprehensive and fair analysis, and provide unbiased, unrestricted advice. Equally, where consumers choose to use a restricted service - such as a firm that can only give advice on its own range of products - this will be made clear.

Addressing the potential for remuneration bias ("Adviser Charging")

• All firms that give investment advice must set their own charges, in agreement with their clients, and will have to meet new standards regarding how they determine and operate these charges. The proposals bring to an end the current, commission-based system of adviser remuneration: they propose to ban product providers from offering amounts of commission to secure sales from adviser firms and, in turn, to ban adviser firms from recommending products that automatically pay commission. Consumers will still be able to have their adviser charges deducted from their investments if they wish, but these charges will no longer be determined by the product providers they are recommended.

Increasing professional standards of advisers

• We plan to raise the minimum level of qualification for investment advisers, and to institute an overarching Code of Ethics and enhanced standards for continuing professional development. They are also proposing visible maintenance and enforcement of these standards through the establishment of a Professional Standards Board.

FSA has recently issued the consultation paper "Distribution of retail investments: Delivering the RDR", which sets out detailed proposals to implement the wide-ranging reforms. The changes, which will take effect from the end of 2012, will improve outcomes for savers and investors by enhancing the quality of advice they receive, and prepare both consumers and the industry for the future.

This paper may serve as a good reference for the Hong Kong regulatory regime.