RDR: FSA goes ahead with ban on factoring citing competition issues
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The FSA is going ahead with its ban on factoring after the Office of Fair Trading warned standardised rates could breach competition rules.
In the retail distribution review policy statement released today the FSA says it has seen no evidence to show banning factoring would impact regular savings products or that factoring encourages savings currently.
It states: “Our rules give adviser firms the option of allowing consumers to pay for initial advice over time for regular contribution products. Offering this option may create transitional liquidity problems for some advisers, but we believe that the limited proportion of income that would be earned in this way, together with the long lead-in time to implementation of the new rules, mean this problem can be overcome.
“We have seen no real evidence that banning factoring would impact regular savings products or that factoring, whether in the form of indemnity commission or otherwise, encourages savings in the current market. We are also conscious that much of the ’new’ regular contribution business reported reflects product switching rather than new savings.
“We have discussed with the Office of Fair Trading the alternative of industry-wide standard rates or credit terms being offered by product providers to financial advisers. It has confirmed that, although such arrangements would have to be considered within their economic context, the application of standardised factoring rates across the industry may raise competition concerns.
“This is because arrangements that have the object or effect of fixing prices could infringe the Chapter I prohibition under the Competition Act and/or Article 101 of the EC Treaty, or may restrict or distort competition in other ways.
“We have gone ahead with the ban on factoring and made clear in our rules that it applies to both product providers and advisers.”
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Readers' comments (2)
Julian Stevens | 26 Mar 2010 1:39 pm
I have to say that on this one I'm in full agreement with the FSA. Nearly 10 years ago we gave up indemnity commission in favour of non-indemnity and I've never looked back.
Those who live month to month just by what they sell will doubtless find it very hard to give up big chunks of indemnity commission.
But for the rest of us who are genuinely focussed on building and developing long term client relationships allied to healthier and more stable long term cashflow (without clawbacks) should have no problems.
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Anonymous | 26 Mar 2010 2:21 pm
Clients will often be unwilling to pay a fee for advice on a regular premium contract, whilst an adviser will often be economically unable to take the fee over the lifetime of the contract. Isnt the result likely to be fewer regular premium contracts?
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