FSA to amend adviser charging rules
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The FSA is proposing to change its adviser charging rules so that clients can cancel an ongoing advice service without having to withdraw their investments.
Guidance in the FSA’s Conduct of Business Sourcebook which comes into force on December 31, 2012 requires advisers to inform the client about how they can cancel ongoing advice charges and stop payment of associated charges.
In its quarterly consultation paper published today the FSA cites the example of where advice is provided alongside fund management, and points out that in this case the client would need to withdraw his or her investments in order to cancel the ongoing service.
The FSA says: “Such a business model would not meet the intention underlying the adviser charging rules, as the customer should be able to cancel a service at any time without penalty.”
The FSA says such a business model also goes against Treating Customers Fairly principles as it could deter clients from cancelling ongoing advice services.
As a result the regulator plans to amend its adviser charging rules to refer to cancellation “without penalty.”
Under the proposed amendment clients will only be required to pay an amount equal to the service already provided by the firm, up to the date the ongoing advice service is cancelled.
Firms will also have to make it clear where charges such as fund management charges will continue after the ongoing advice service stops.
The proposed rules will also apply to a member of a group personal pension scheme wanting to cancel ongoing service for individual advice.
The FSA says it will publish final rules on trail commission later this year.
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Readers' comments (19)
Rod | 6 Jun 2011 2:56 pm
Another nail in the IFA coffin, 39 years of work to look after clients, many who pay nothing to me, but the FSA wants to remove my hard earned renewals and trail fees.
Is this madness ever going to stop? what have we done to deserve being treated worse than criminals with no human rights or recorse to justice.
Would someone at the FSA please tell us.
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Simon Mansell | 6 Jun 2011 3:25 pm
"The customer should be able to cancel a service at any time without penalty.”
This rather dependents on how you define penalty. So If I bill the customer for X (initial) amount and waive this in return for Y (trail) on the basis that I should not in fact be paid twice. What should I not have an agreement stateing that if Y is cancelled X becomes payable in full? The FSA action seems to be anti consumer because it means we will be forced into high initial fees rather than risk being ripped off by the consumer becuase we defer fees in favour of a longer term client relationship based on trail.
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ironman chris | 6 Jun 2011 3:35 pm
Rod, The Banks do as they like so the only people the FSA regulate, sorry bully are the IFA's. We are just easy pickings. Where's are trade bodies in all of this,I know in the pockets of the FSA
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Andy | 6 Jun 2011 3:53 pm
If I agree a fee with a client, but they wish to pay over 12 mths as they can't afford to pay for pension splitting or transfer up advice front, if after receiving the advice do they have the right to not pay the rest of the installmenmts?
What if a client cancelled an investment under the SNOC rules.....does this mean they will have the right to a fee refund?
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Steve S | 6 Jun 2011 4:27 pm
Our FSA fees are paid up front for 12 months if we cancelled these or reregistered would they refund our fees?
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Michael Both | 6 Jun 2011 4:31 pm
This is really worrying. Years ago the maximum fee for just giving advice on mortgages was less than £10 no matter how much work had been put in. The regulator thought it hilarious that a professional adviser, liable without limit for the quality of that advice, could be forced to work for nothing.
Although most clients are decent and honest we all know from experience that some are anything but. For the regulator to enshrine the ability to effectively breach a commercial contract, but only for one party, would never be tolerated in any other situation, only in the legal hell they have decided IFAs must suffer.
Even if one disagrees with it, one can understand the desire to break the link between an advice and an administration service but will it be practicable? IFAs will need two contracts with a customer, a severable one for the advice which may cease and a second one purely for the administration where we remain responsible for reporting. If they don't want to pay the latter then ex-advice customers will have to move the assets away at their own cost.
You don't need a crystal ball to work out how that will pan out; except the FSA will doubtless claim against any logic or evidence that it will be better for the consumer. And then be surprised that the provision of advice is harder to come by. Still, at least the regulator can honestly claim to be equal opportunity employer of the intellectually challenged.
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Harry | 6 Jun 2011 4:32 pm
Simon Mansell - you find this difficult to understand again?
Yes if you charge a client X, payable over 12 months....the FSA or client can't have a change of mind and not pay you later.
Now if you say "Ok, I'll do all this work for you and not charge you upfront (as you can't afford it) but you can pay me 0.5% trail" - then you might be open to trouble.
What the FSA are trying to do is to prevent advisers getting round the fee obstacle by giving the client the power to stop an ongoing service payment when they feel like it. It's simply up to the adviser to agree up front the amount and over how long they are to get paid.
This ain't rocket science.
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Phil Castle | 6 Jun 2011 4:43 pm
Unusual for it to appear I am sticking up for the FSA
@ Rod commission on pre Jan 2013 should not come in to it.
@ Andy - Unless the FSA have changed it from the previous RDR paper, for regualr premium work, if you agree a fee paid in instalments, you can hold the client to it if teh contract stops early provided your Client Agreement has made it clear, but the period it can be spread over is a max of 2 years I think. Lump sum advice costs cannot be spread over time and in anycase can be taken as a reduction in allocation rate if the product allows adviser charging.
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Phil Castle | 6 Jun 2011 4:58 pm
@ Micahel - If it is the ongoing service charges which the client can stop, it will be very hard for the FOS and FSA to argue AGAINST respect for teh longstop as either by stopping the charges, the client has taken on sole responsibility for the future themselves OR they have appointed another adviser. In eitehr case, the argument for time bars for professional negligence would have greater realvence. The moment the consumer stops the ongoing payment, it would be clear that a 6, 3 and 15 year clock would start ticking as the consumer would be teh one who had terminated the professional service.
We as a firm had already instigated something similar with a view to achieving the same, by charging a modest monthly retainer so that if or when teh payment stopped we could argue teh case that it was at that date that our professional services ceased and a clock started ticking. Whether teh FOS then respected that or not, we had never needed to test, but I do think it would have made it harder for them to argue against it.
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Sam Caunt | 7 Jun 2011 8:42 am
There is a bit of hypocrisy here by the FSA – why can’t consumers cancel pre RDR trail just as easily? Do we switch off just post RDR trail? Just switch off part of the trail that is paying for the ongoing service? Is that right? Inconsistent FSA again....
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