Selfishly, FSA have just published their Finalised Guidance paper FG12/16 on Centralised Investment Propositions and replacement business. I say selfishly, because I’ve been out all week and am trying to catch up with some stuff and instead I’ve had to read the paper and do this blog.

Most of it is the same stuff as GC12/06 – you can see what I banged on about in regard to that here. But there are a few things worth bringing out again (I know some IFAs read this and it’s really aimed at you) and one or two important changes.

  1. In a wee footnote on page 9, our Wharfian friends say, “We do not consider the ability to facilitate adviser charging to be adequate justification on its own for switching to a new, higher cost solution.” So where legacy providers say that you can’t have commission any more because you’ve advised on that product post-RDR, but they can’t afford/justify/be arsed building AC, that’s tough. Many older products, as we all know, look cheap (even though all kinds of stuff is happening behind the scenes) and transfers to transparent products can be difficult. This is good news for legacy providers, who can just keep the commission, and bad news for anyone else. Hopefully packaged products will be brought into scope as per the recent CP and we can get a little sunlight in these dark areas.
  2. Just because you’re getting a new shiny investment proposition don’t mean it will perform any better. Be very, very wary of using performance as a justification for appointing a DFM, using a model port service or anything CIP-like. We do some DFM due diligence (at attractive rates, natch) for IFAs and while we report on performance we try and keep it out of the decision-making process as much as possible (outliers excepted).
  3. Do proper fact-finding and record-keeping. Don’t do generic client objectives. #thatisall
  4. Most importantly, where you use a DFM model portfolio service, this does not require the client to sign up as a client of that DFM. You, as adviser, are the client. But you must make it clear to the client who’s managing their money. It goes without saying (I hope) that the CIP you use, outsourced or not, must be properly researched, documented per client for suitability and where you do outsource you should do proper due diligence.

There is a bunch of other useful stuff in this FG paper, but that point on ‘whose client is it anyway’ is really important – it’s a rollback to before GC12/06 and I think a hat-tip to whoever in Policy wrote this is due for being big enough to take the real world situation on the chin.

If you don’t read FSA stuff on principle, you’re an idiot. If you mean to but run out of time, then I’d urge you to get in and around this one – it’s only 26 pages and 2 of those are the title page and the annex. There’s lots of white space and the longest word I found was ‘recommendation’, which isn’t too bad. This is the owner’s manual now for switch business and new-style investment propositions. It’d be daft not to get it as it was drafted – take it into the carsey instead of the sports section.