You are the Compliance Oversight “CF10” officer of a busy independent investment intermediary. Three months post RDR and things appeared to be going fine, but you decided to conduct a review of the firm’s progress. Advisers have their SPSs, and CPD activity is ongoing so you currently consider the ‘professionalism’ strand on track against your internal KPIs. You have already considered issues around your “independent” advice offering over the past month. You now want to have a more in-depth look at adviser charging and how this is being practically implemented in your firm. Given that your ‘adviser charging’ approach is largely a reworking of previous commission receipts, you are also concerned about whether proper procedures are being followed.
The essence of the new adviser charging rules is that they require firms to give the client their charging structure before they provide advice, and to disclose the total adviser charge for the service they provide to that client ‘as early as practicable’. Disclosure of the total charges must be in cash terms or, if the charges are in non-cash terms such as percentages, convert non-cash terms into illustrative cash equivalents.
Among the many ‘adviser charging’ matters to check are:
Is there a documented adviser charging structure in place?
How are the adviser charges disclosed pre-advice? The nature of your charging structure must be disclosed clearly to the client in advance of providing advice.
How are the adviser charges confirmed post-advice? The actual cash sums must be used.
How will adviser charges be settled? Offset of any pre-RDR trail commissions received may need particular explanation.
Can adviser charges be facilitated? The rules on facilitation apply to product providers and platform service providers but other firms can continue to facilitate payment of adviser charges by operating client money accounts from which investors can ask for their advisers to be paid. Your intermediary firm will of course only be able to accept payments that comply with the adviser charging rules.
Are you complying with the rule requirement not to solicit or accept any form of post-RDR commission? While UK providers are prevented from paying such post-RDR commission, this does not restrict overseas providers from attempting to do so.
Do you have one-off and/or ongoing adviser charges? Are these clearly disclosed and documented?
Do you allow adviser charges to be paid by instalments? There are both FCA rules and potentially Consumer Credit Act rules to meet.
Will you charge for not recommending a product? It is entirely acceptable for firms to charge for a service, irrespective of the outcome, for example, whether a pensions switch happens or not, whether or not an investment bond is purchased or where the client does not accept your recommendation to buy a product.
Are different prices for the same services charged to different customers? The FCA understands that the time taken to provide a recommendation does not depend on the sums of money involved. It can see circumstances where it would be feasible to charge somebody with less to invest a proportionately higher fee than someone with a higher amount. However, any material difference in charges from those set out in the charging structure will need to be drawn to the client’s attention and agreed with them.
Remember that the FCA has said “The cost of advice is a business decision for the firm, provided it meets the rules … on how to determine its charging structure, and considers its duties under the client’s best interests. As long as it complies with those rules, it is unlikely that we would comment on the amount charged or the method used. But we will pay close attention to the disclosure of the cost of advice and the disclosure of what the client should expect to receive for this cost, especially in the area of ongoing advice” and that “You are also free to offer or negotiate a different price to that in the charging structure for a particular client, for example, a lower price for an existing client.”.
The FCA has already started its thematic reviews of aspects of RDR compliance and it would be wise to be ahead of the game in this respect. It is also well worth considering that, if your position as CF10 is ‘too close to the business’ and potential conflicts of interest arise in terms of having an independent review of your RDR current state you will need to bring this to your Board’s attention for deeper consideration.
Simon Collins managing director of RGP Compliance