TISA sets out distributor funds best practice
TISA has published an independent report into distributor funds which sets out the industry best practices necessary to achieve good consumer outcomes within the current and post RDR regulatory structure.
It follows concerns expressed by the Financial Services Authority and by the investment industry in relation to the potential for conflicts of interest and bias in the operation of distributor funds. TISA recognised the need to review the market and established an executive committee of market participants who in turn commissioned Eversheds to produce an independent report.
The report concludes that it should be possible to address these concerns within the existing regulatory framework. However, in some cases distribution firms will need to modify their processes and arrangements or introduce new systems and controls.
Areas highlighted by the report where best practice is essential are: a need for straightforward product design; clear branding; transparent pricing, fee justification and performance disclosure to address the need to deliver value for money; reporting and switching to competitor funds.
Tony Vine-Lott, TISA director general says:
“The overriding aim of this review is to ensure that distributor funds provide positive consumer outcomes. To achieve this we need a distributor funds market that operates compliantly and effectively for the benefit of all parties – one that allows product providers to devise effective and appropriate solutions to meet a variety of clients’ needs.
“By identifying industry best practice this report is a significant step forward in the process. A number of discussions have been held with the FSA who have been given the final report. We wish to continue to work with the regulator on areas that we consider need further debate and clarification, namely:
- the various ways in which IFA and distributor networks can operate under the vertically integrated business model compliantly;
- the ways in which IFA and distribution networks can evidence and support the position that they provide a substantive manufacturing role; and
- the checks and balances required to evidence satisfactory consumer outcomes.”
The report is available to view on the TISA website: www.tisa.uk.com
Ends……
For further information, please contact:
Tony Vine-Lott, Director General, TISA – Tel: 01372 374728, Mobile: 07790 006108Email: tony.vine-lott@tisa.uk.com
Malcolm Small, Director of Policy, Mobile: 07989 500771 Email: malcolm.small@tisa.uk.com
Issued on behalf of TISA by Cauldron Consulting, contact Steve Radford – Tel: 020 3178 7238, Mobile: 07889 903786 Email: steve.radford@cauldron-consulting.com
Notes for Editors
The overall conclusions of TISA’s distributor funds report are:
- We do not recommend that a definition of a distributor fund (DF) be formulated for inclusion in the FSA rules
- We recommend such funds are referred to as distributor funds rather than distributor-influenced funds, which term contains an automatic sense of bias
- We consider that there are a sufficient number of steps that could be taken within the current regulatory framework to put in place strong systems, controls and processes to mitigate risks to customers arising from the inherent conflicts which are contained within a DF. These are likely to have cost implications for distribution firms and potentially product providers. The whole system would also be more robust in the event that only regulated entities were involved in the structure
- We consider that that DFs can be operated post RDR within the parameters outlined in the Report
- An independent adviser can sell a DF post RDR subject to the various checks and balances highlighted in the Report
- We consider that it would be useful for the FSA to work with the industry to develop appropriate criteria, checks and balances so that product providers and distribution firms associated with DFs can have certainty and confidence when planning for the future
- Any such checks and balances should also apply to “vertically integrated” models offered by, for example, bancassurers, insurers and fund managers, on the basis that these structures can give rise to many of the same regulatory issues as those traditionally identified in relation to distributor funds
- We consider that the FSA should give consideration to allowing distribution firms the ability to charge a fee at a commercial rate for work it carries out as part of the overall governance of the DF, including participation on an investment committee.
The Tax Incentivised Savings Association (TISA)
TISA is the premier industry funded body in the UK retail savings and investment industry. By engaging with member firms, government, political parties, regulators and consumer groups TISA’s ultimate goal is always to further consumers’ best interests. It seeks to improve the range, features and quality of savings and investment schemes available whilst encouraging more people to save for their financial security and peace of mind.
Uniquely, TISA is able to articulate the opinions of the whole savings and investments marketplace through its membership comprising over 120 member firms involved in the supply or distribution of products. TISA’s remit extends across the broad spectrum of government sponsored savings and investment vehicles.