The Retail Distribution Review (RDR) was launched by the UK’s Financial Services Authority (FSA) in 2006 to consider the suitability of advice offered by financial services firms to Retail Clients. The review focused on three specific areas: clarity of services offered, adviser remuneration and professional standards.
Much of the review relates to the marketing and selling of products to retail clients, areas that can be considered less relevant for Single Family Offices (SFOs) and Multi-Family Offices (MFOs). However, the review of professional standards covers all authorised advisers working within the industry. This impacts all firms across the sector advising retail clients, from the very large institutions to the small independent firms. Family offices such as SandAire are no exception and there are no waivers to the rules.
The majority of SandAire clients have a good under-standing of the markets and the investment industry. Despite many of them being entrepreneurs and suc-cessful business persons in their chosen field, the strict requirements imposed by the FSA, which need to be met in order to qualify as a professional client, mean most family members are still classified as retail clients.
As of December 2012, RDR requires all who advise retail clients to satisfy the enhanced professional stand-ards that have been introduced. This includes the requirement to attain at least a “level 4” qualification (as defined by the FSA), complete a minimum 35 hours of CPD and obtain a Statement of Professional Standing (“SPS”) – effectively a licence to practice. The RDR does not include any grandfathering provisions, which effec-tively allow those already advising retail clients to con-tinue without meeting any of the requirements. The implications of this are that a large number of senior advisers have found themselves in the position of no longer being qualified to carry out their role post 2012, irrespective of their years of experience.
SandAire is structured into three main business areas: the Client Relationship Team (CRM), which is the primary interface with the clients, the Invest-ment Team and Operations. All areas of the firm work closely together to ensure the effective running of client accounts. As part of our open structure, clients have direct access to both the CRM Team and the Investment team, therefore requiring those working in both these teams to be fully RDR compliant by the December 2012 deadline.
As one of the advisers within the CRM Team at SandAire and directly affected by the RDR, I was tasked with carrying out a full review of our advisers existing qualifications to identify what each individual needed to do with to comply with the RDR.
SandAire employs a number of investment professionals with a wide range of industry knowledge and several years of experience, both in advising wealthy individuals and managing investment portfolios. The diverse back-ground of our team is reflected in the qualifications held, including the globally recognised CFA, the CISI exams and the CFP. From a business perspective we consider this diversity a strength, but RDR does not recognise a number of qualifications, leaving some of our team and many more across the industry as a whole, needing to obtain new qualifications.
For some of our team, where their existing exams met the “level 4” requirement, all they needed to do was to ‘gapfill’ some areas to ensure full compliance with the RDR syllabus. This was achieved by attending courses organised by the professional bodies i.e. CFA, or run by professional training providers. With 37% of our advisers, including myself, falling into this category, the onus is on them to complete the gapfill as soon as prac-tically possible.
The remaining advisers held qualifications that were not recognised under the scope of the RDR as they were not considered relevant or did not meet the “level 4” benchmark. These advisers were left needing to take exams, either supplementing ones they had already taken or starting a new qualification.
Examination
As a firm there were two main considerations when assessing suitability of the examination route for these advisers. The first was the relevance of the qualification to their business area and role, the second was the time required to complete it. With such a short duration to attain the necessary qualification and apply for the SPS, some examination routes were effectively eliminated.
In an ideal world, those with roles that are focused on investment management would have taken CFA level one in combination with the IMC. The advisers in the client facing roles would take exams relevant for those advising private clients, such as the CISI PICAM. How-ever, CFA level one only has two sittings per annum and given the time required for study and prepara-tion this provided only one opportunity to sit the exam before the December 2012 deadline. Similar restrictions affected the PICAM exam.
It was decided, therefore, that all affected advisers at SandAire should sit the CISI Investment Advice Diploma, including both the Securities and Derivatives modules. While this route entails four separate exams, it is fully RDR compliant and offers the flexibility to be scheduled at times convienent to the individual.
With 20% of our advisers already in possession of their SPS and the remaining on schedule to complete their exams in time to apply, SandAire is confident that as a firm, RDR should not have any significant impact for advisers to continue in their positions post 2012.
Many in the industry have questioned the rationale for requiring those who have a number of years and, therefore, significant experience in managing invest-ments, to take time out of their busy schedule to focus on examinations. With such volatile markets and a con-stantly changing economic outlook, it can be argued the key focus for these advisers should be on managing the risk of their client’s assets. There is also a question as to whether family offices should even fall under the scope of the RDR, since with a more sophisticated client base and fees not focused on product selling, the review may be less relevant?
One way to avoid inclusion under the review would be not to have any retail clients, for example by holding all investments within an appropriate corporate struc-ture, which would not be classed as a retail and there-fore would be excluded from the scope of the review. Many SFOs do operate this sort of structure and that may explain why so little has been heard about the impact of RDR on SFOs. For those not able to avoid the scope of the review, the 31st December 2012 deadline is ticking and prompt and effective action is required to comply.
