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Categories:Advisers,Regulation

Adviser charging: Do you need a Consumer Credit Licence?

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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.”

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Readers' comments (10)

  • Dennis Hall raises a very valid and often overlooked point in the whole transition process when he says: “ I do not know how many firms will have the cash flow as they move away from commission........."

    With increased costs, unexpected costs and now further albeit small licence costs the burden for many who have not planned well for 2013 will be heavy.

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  • I have just applied to renew our license as our first one expires in December (yes folks it's five years since my business started). The email I had back from them said they expect to complete it by 10th December, so if you need one do get on with it straight away.

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  • Ah well thats my clients just lost another option!
    Thought it was a good idea to allow client to spread initial fee over 12 or 18 months but hadn't realised I'd get taxed for it!! If I've got to go to the length of a consumer credit license I might as well add on some interest. Never mind it's all good for the client at the end of the day, upfront fee's, VAT, interest on fees.......pretty sure none of my clients will see any of this as a way to restore their confidence in financial markets however when I start all this with them I'm fairly sure a good portion of them will loose confidence! Roll on January!!

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  • Forgive me for appearing thick but a question springs to mind......after RDR when trail can still be paid on existing business, but new business attracts CAR (they are I take it, now both deemed to be the same at this point?), if CAR is taken over more than 4 installments, a CCL is required. If the trail is being taken over more than 4 installments ie. monthly, will the adviser have to apply for a CCL to cover the existing trail? If so, why is this not the case currently and historically?

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  • Talk about the law of unintended consequences. Does this regulator understand the industry it is regulating!!
    I think not.

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  • I would have thought that most advisers would have a consumer credit licence anyway as if you give advice on mortgages or any form of debt mitigation you should have a valid CCL. I am about to renew mine in December and shocked at how much it has gone up since five years ago as now for a limited company is £1215.

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  • At Anonymous 10.31am - it is a valid question (I did think this myself) however I believe that as trail is technically classed as deferred initial commission it doesn't fall into a fee category, and it is only because you are charging the client a fee and then giving them the option to pay it over a period of time, i.e. more than 4 instalments.

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  • @ Peter H - OFT website See page 4 If you only ‘occasionally’ enter into a transaction requiring a licence, you will not be treated as carrying on that kind of business and will not need a licence.
    and Page 19 Since 31 October 2004, introducing people to lenders or other credit brokers for the purposes of obtaining a first charge mortgage has not generally constituted credit brokerage. In many cases, this activity is instead regulated by the FSA (for further details see ‘Where to go for more information’ on page 32).

    http://www.oft.gov.uk/shared_oft/business_leaflets/credit_licences/oft147.pdf

    Based on the above I would read it that you don't need a CCL for a 1st charge mortgage, but you do for a second charge of for a buy to let.
    If you rarely if ever do regular premium pensions or ISAs, then the wording implies you don't need a ccl.......

    I do however stand to be corrected.

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  • CAR payments on regular contributions probably don't constitute any form of 'credit' and therefore Cat A CCL licence is not required. However, if the salesman wants to charge an initial payment and make the client pay for it in instalments then a CCL will be required, AND FSA will be interested in your business model (as this looks exactly like initial commission factored by a life office).

    If its a lump sum investment why instalments and if its a regular contribution then the general RDR principal is that you can't take what is not there.

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  • What about the annual advice fee charge being facilitated from say a wrap provider. Would the ongoing advice service fee, if received monthly from the provider, being 12 times a year, constitute a need for a Consumer credit licence.

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