Adviser charging: Do you need a Consumer Credit Licence?

Advisers have been warned they will be required to hold a consumer credit licence if they spread their adviser charge over more than four instalments.

Under the Consumer Credit Act 1974, most businesses that provide goods and services on credit, lend money or provide debt services to consumers need to have a consumer credit licence.

Aifa senior technical analyst Linda Smith (pictured) says advisers may not be aware they need to hold a consumer credit licence where they agree to take adviser charges in instalments, where more than four instalments fall due. A licence for this arrangement is required whether payments are made directly or facilitated through the product.

Many advisers are likely to already hold a consumer credit licence if they advise on mortgages or provide debt advice, but are unlikely to hold the appropriate “category A” licence required.

Advisers can apply for a licence through the OFT’s online application form, available on its website. A new consumer credit licence will cost advisers £435 if they are a sole trader and £1,075 if they are a partnership, company or other organisation. Varying a licence category costs £80.

Smith says: “We think people need to be aware of these requirements so they can make the necessary enquiries if they are not considering doing so already.”

Writing in this week’s Money Marketing, she adds: “This is an important part of an adviser charging proposition which may have been overlooked until now.”

An Office of Fair Trading spokesman says advisers’ compliance with the licence requirement will be monitored as part of the OFT’s overall supervision. In the event of continued non-compliance, firms will face formal action to withdrawal their licence and, in extreme cases, a penalty of up to £50,000.

Yellowtail Financial Planning managing director Dennis Hall says: “This requirement will see firms move to taking payments as a single upfront charge. What is more, I do not know how many firms will have the cash flow as they move away from commission to be able to spread payments over time.”