August 2008 Target (Printer Friendly Version)


Welcome to Target...

We lead this month with the news that the RDR full feedback statement has been delayed until November. The FSA were very keen to make clear that this was due to no other reason than the new appointment of Jon Pain, Retail Markets Director and Jon’s desire to fully integrate with the process before this important part of the RDR journey was completed.

Also inside this month’s issue, we provide further useful information in the build up to the replacement of the RMAR by GABRIEL, including a recommendation to print off your previous RMAR returns which otherwise will be lost when the systems switch over.

On the technical front, we provide information regarding the impact of CGT on Investment Bonds and how the FSA are looking closely at transactions in this area. We also provide a brief background to the FSA’s consultation regarding proposed changes to enable the UK asset management industry to become more competitive and we also focus on the recent issue of defined benefit direct offer pensions.

We highlight how the FOS factor in payments for distress and inconvenience and finally we provide details of the Aegon Scottish Equitable with-profits analyser tool for those firms committed to conducting client reviews in this area.

If you have any comments regarding Target, please e-mail


  • FSA announces change to RDR timetable
  • GABRIEL - Further important information
  • Capital Gains Tax changes: impact on insurance bonds
  • Consultations launched on asset management taxation
  • Defined Benefit Pensions - Direct Offer Transfers
  • Financial Ombudsman Service Awards for distress and inconvenience
  • With-Profit Bonds Reviews - Assistance from Aegon Scottish Equitable

FSA announces change to RDR timetable

The FSA has recently announced that the publication of the full feedback statement on the Retail Distribution Review (RDR) Discussion Paper has been moved back to November 2008.

The feedback statement was originally due to be published towards the end of October, but, following the appointment of Jon Pain, who will be joining the FSA as Retail Markets director in September, this has been moved back to give him time to engage with the process before delivering the next stage of the RDR.

In November, the feedback statement will include the full feedback received during the discussion period along with the FSA's decisions on the future implementation of any regulatory changes coming out of the RDR, and the timetable for formal consultation on those changes.

Paradigm will of course keep you fully updated with developments.

GABRIEL - Further Important Information

With the FSA’s new regulatory reporting system, GABRIEL, about to replace the RMAR, you may have already received an email from the FSA, or will be receiving one shortly, which provides details of where firms can find further information on GABRIEL. This Includes an electronic leaflet containing an overview of the changes together with a link to a free online training package. Links to these two items are included below for your convenience:

Integrated Regulatory Reporting – What’s coming up for RMAR reporters

Online training package

In addition, there are a couple of other areas where we feel it would be useful to provide some additional information for firms.

Print outs of previous RMAR returns

When GABRIEL comes into effect any information regarding RMARs previously completed will be removed from the system and firms will no longer be able to access this data. In view of this we recommend firms print off and save copies of previously completed returns for their records ASAP in order that they have a useful point of reference going forward.

Input of Professional Indemnity Insurance details

Under GABRIEL, firms will need to input details of both their Professional Indemnity Insurance requirements and the particulars of the actual cover that they have in place. In our opinion, the required information for GABRIEL is likely to be the following and therefore firms may wish to note this information in preparation for GABRIEL’s introduction:

€1,000,000 for a single claim against the firm (sterling equivalent); and

€1,500,000 in the aggregate (sterling equivalent);

No more than £5,000 policy excess

Please note that GABRIEL will permit a choice of currency which you can input into your return (the default is £ sterling).

Firms may wish to note that as the limits in the FSA handbook are stated in Euros, firms must select a Stirling equivalentor greater at the time of taking out a new policy or on renewal. If the exchange rates drop or increase during the term of the policy that is fine but the indemnity limit should be reviewed at each renewal to ensure it is above the Euro minimum.

As mentioned in last months GABRIEL article, your firm will shortly be receiving a GABRIEL pack which will provide further information regarding this and other relevant GABRIEL information. Should you have any questions once you have read through the pack, please do not hesitate to contact your Paradigm Business Consultant or Paradigm Technical Services on 0845 620 1998 email

Capital Gains Tax changes: impact on Insurance Bonds

In the 2008 Budget the government announced a change in the Capital Gains Tax (CGT) rules to a single rate of 18%. One of the consequences of this is that insurance bonds no longer have certain tax advantages.

In a recent newsletter, the FSA has outlined its thoughts on how advisers should respond to these changes from a Treating Customers Fairly perspective.

The FSA has stated that where firms have sold or advised on the sale of insurance bonds, they should offer customers an ongoing service consistent with the expectations they created at the time (or subsequently). If no expectation of ongoing information or advice has been created, there is no need to write to customers advising them of the consequences of any tax change. This is based on the presumption that the information and advice given at the time of sale (or subsequently) was clear, fair and not misleading, and suitable at the time it was given. If a firm has reason to believe that it was not, it should act.

The FSA has also said that they will be monitoring sales and transfers out of insurance bonds for evidence of any inappropriate advice. Advisers recommending clients to reinvest in alternative products should ensure that they weigh up the costs (including benefits given up) of switching out of insurance bonds against any (net) benefits from investing in alternative instruments.

Consultations launched on asset management taxation

Earlier in the year, the Budget announced a package of measures to be introduced with the aim of making the UK a more competitive location for asset management.

Following on from this the government has issued three consultation papers focusing on the subject of enhancing the competitiveness of the UK’s asset management industry.

The consultation papers will propose the:

  • introduction of a direct tax exemption regime for UK Authorised Investment Funds;
  • removal of the tax as a barrier to Qualified Investor Schemes by replacing the substantial holding rule; and
  • adaptation of the tax rules for Investment Trust Companies to deliver tax efficient investment into interest bearing assets.

The consultation period runs until 22nd October and the government hopes to be able to issue draft legislation for consultation by the end of the year.

Defined Benefit Pensions – Direct Offer Transfers

The provision of direct offer advice in relation to GPP business is relatively common place amongst IFA firms. However the FSA have recently become aware of growing instances where Defined Benefit (DB) pension transfer business is also being conducted on a direct offer basis. This is where members of a DB occupational scheme receive promotional information encouraging them to transfer out without advice.

The FSA have stated that this kind of decision requires specialist knowledge and that it would be very difficult for promotional

material to fully explain all the risks involved. The FSA also stress that it would be very difficult to produce a DB pension transfer direct offer pack that is fair, clear and not misleading.

Based on our understanding of your business we do not believe that Paradigm Partner firms are active in this area but we believe it is prudent to highlight this issue and to inform you that the FSA have warned firms that it intends to increase its supervisory scrutiny of these activities and enforcement action will be considered where failings are identified.

Financial Ombudsman Service Awards for distress and inconvenience

In the latest Financial Ombudsman Service (FOS) news, Issue 71 – August 2008, the Ombudsman focuses on how it approaches compensation for distress, inconvenience or other non-financial loss.

Whilst we appreciate that for Paradigm Partner firms complaints handling is very much the exception rather than the norm, we thought it would be useful to highlight this topic in order to provide an insight as to how and when the FOS can apply compensation payments for distress, inconvenience or other non financial loss over and above any settlement for financial compensation.

In the above publication, the FOS provides real life examples of decisions made by them where modest, significant and exceptional compensation has been paid due to the client suffering distress, inconvenience or other non financial loss.

Some of these examples are described below:

Modest (less than £300)

  • Minor administrative error by the financial business which caused the consumer to write to/phone it a few times before the problem was sorted out.
  • Material distress arising from the financial business's continued failure to deal with an apparently eligible and potentially meritorious complaint.

Significant (£300 – £999)

  • Disappointment that inheritance tax planning failed, or was not as outlined.
  • Pension policy under-paid for a significant period, leading the consumer to suffer reduced living standards for a material period of time.

Exceptional (£1,000 +)

  • The financial business wrongly disclosed the consumer's address to her violent estranged partner – it knew the circumstances, and about his violence. The partner subsequently broke into her home and assaulted her, causing her to spend several days in hospital.
  • Significant error by the financial business in connection with a pension policy, meaning that the consumer had to consider working again after initial retirement.

In an accompanying technical note the Ombudsman provides further guidance on a number of other issues including:

  • What is meant by ‘distress’, ‘inconvenience’ and ‘pain and suffering’
  • Whether this was the fault of the financial business
  • The types of situations where they consider compensation for distress or inconvenience
  • The types of situations where they consider compensation for distress or inconvenience
  • Whether the degree of distress or inconvenience was material
  • Damage to reputation
  • How they assess any compensation

The technical note confirms that this type of award will only be made if the firm has caused the distress or inconvenience through some mistake or failure. Neither will the FOS award compensation where the degree of inconvenience or distress seems to be trivial.

FOS explain that unlike a court, which can only award damages for distress and inconvenience where the purpose of a contract was to provide pleasure, relaxation or peace of mind, the FOS decides each case on what is fair and reasonable in the circumstances.

With-Profits Bonds Reviews – Assistance from Aegon Scottish Equitable

The issue of with-profits reviews has been around for some time now and for those firms that have made a commitment to clients to review their with-profits policies, and are yet to do so, the following information may be of interest.

The need for a review

At a recent conference FSA director Sarah Wilson said: ‘The FSA has found considerable evidence that advisers are not providing the ongoing advice on with-profit policies in all the cases they should.’

Carrying out a review could be important because with-profits have changed so much and your clients’ circumstances may also have altered. It should be noted that you are not obliged to carry out such reviews where the terms of business agreed with your client makes it clear that you will not keep a client’s investments under review although we appreciate that some firms have, as part of their TCF action plan, taken a decision to undertake with-profits reviews regardless.

Overview of a with-profits bond

During the mid-to-late 1990s and the first few years of the 2000s, with-profits was the main route for investors looking for a long-term, secure contract. Using a mix of equities, fixed interest, property and cash, they offered a distinctive smoothing process to soften the ups and downs of the market.

So what has changed?

Equity markets fell over 2000–2003, at which time it became clear that many providers had offered levels of guarantees that were simply too high relative to the assets in which they had invested. What we saw was a dramatic shift into more secure fixed interest investments, with many planholders now unable to participate to the same degree as before in equities. Even allowing for the recovery in equity markets since 2003, the equity backing ratios of with-profits funds generally remain much lower than they were around the turn of the century.

According to Cazalet Consulting’s 2006 Life Report, the average equity exposure of a with-profits bond was sitting at 66% in early 2000. By 2006, this average had dropped to 39%. These figures confirm that companies are still some way away from the equity exposure of early 2000. This makes it impossible for clients to enjoy the full benefit of the upturn in market.

When you couple this with the introduction of Market Value Reductions (MVRs) and the reduction in annual bonus rates it is easy to see why clients can say the product they were sold then is not the product they have now.

With-Profits Analyser

To assist firms in carrying out with-profits reviews, Aegon Scottish Equitable have made available a with-profits analyser, the key points of which are as follows:

  • It is quick and easy to use
  • It provides up-to-date information on your client’s bond from Cazalet Consulting Ltd
  • It doesn’t waste your time – you can do a short review first and if that shows the investment is still suitable, you can finish the review there
  • It includes an inbuilt risk profiler to find out your client’s current attitude to risk
  • It provides a forecast of the existing bond against alternative investment based on the above
  • It gives an automatic report for your client after you’ve taken your advice decision – which you can add information to when you like
  • It provides a complete audit trail
  • It FREE

To find out more about the With-Profits Analyser tool, including a demonstration, check out the Aegon Scottish Equitable website.

Alternatively call your access account manager on 0845 61 000 61 or your local AEGON Scottish Equitable consultant.