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Advisers can take provider loans post-RDR

Advisers will be free to take out commercial loans from product providers post-RDR despite the FSA imposing a ban on factoring in order to stamp out provider bias.

Writing in this week’s Money Marketing, FSA director of conduct policy Sheila Nicoll (pictured) also confirms that advisers will be allowed to continue to get existing trail commission post-2012 when a firm is sold or joins or leaves a network.

Nicoll adds: “Like commission, factoring arrangements have the potential to create bias. Importantly, though, the new rules are not there to constrain adviser firms from seeking out credit on commercial terms. Advisers will remain free to take out loans from different firms, including banks, adviser networks and even product providers.”

Nicoll says any credit needs to be based on firms’ overall income rather than any income generated via a provider.

An FSA spokeswoman says it is not concerned that commercial loans will introduce a new form of bias. She says restrictions are already in place to prevent providers from offering loans at significantly better rates than they could get elsewhere.

Aifa policy director Andrew Strange says: “It does not seem to me to be a fundamental policy shift to get from a stage where product providers are able to lend intermediaries money on commercial terms to where if the industry got together and agr-eed what commercial terms were, with the blessing of the FSA and the OFT, that it could facilitate some form factoring.

“The reality is without factoring, the regular-premium market will really struggle.”


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There are 9 comments at the moment, we would love to hear your opinion too.

  1. They must be near to running out of fag packets to work out their policies

  2. So, the adviser agrees with the client that the provider will collect the fee for advice on an ongoing basis and pass it on to the IFA.

    The provider then “lends” money to the IFA, with loan repayments being met by the client’s fee payments, with the interest charged up front based, say, on a 4 year repayment period.

    That’s nothing like the current commission model is it?

  3. You must be joking 3rd June 2010 at 9:18 am

    So the FSA will allow IFAs to take out loans on a commercial basis? How jolly decent of them to deem it allowable for a business to make a commercial transaction!

    Is it really the FSAs remit to dictate what commercial decisions a business can and cannot take anyway?

    Of course, allowing IFAs to take out loans will ensure that FSA fees can be paid going forward….

    Cynical? You bet!

  4. A few years back there was a dedicated system where policy changes were sneaked out via a speech here or a at a function over there.

    This practice appeared to fade away in recent years but once again seems to be rearing its head.

    It certainly seems to any inccoent bystander that it is a make it up as you go system and clearly borrows from past governmental practice.

    The whole RDR is descending from shambles to joke and the sooner the FSA publicly states that it was a stupid idea – like the menu, like de-polarisation, like the Buyers Guide – in fact like most of their recent output – the better able the industry will be to get on with its prime function of assisting UK plc with its need to save, insure and protect.

  5. It would be interesting to know just who at the FSA is making up the rules for the RDR as it appears that someone,probably the tea lady goes home at night has a drink then gets this great idea tells some one at the FSA dept looking at RDR and whow anew rule. FSA now stands fo farcical arrogant and ‘make up your own’

  6. ..and how would these loans be taken into account for capital adequacy calcs?

  7. 3rd June 2010 at 1:09 pm

    nationalise us and be done with it (or are we there already) Next the fsa will be setting out our hours of work, holiday entitlement, etc. etc.
    ” Allow us to take out loans on a commercial basis” Very kind of them indeed, we should be grateful for the crumbs they throw to the dogs.

  8. SIMON MANSELL 3rd June 2010 at 1:34 pm

    Ms Nicoll if you look at commission and then indemnity commission rates you may notice there is a difference and this equates to interest at a commercial rate. If you encourage commercial debts then you are adding to the debts crisis of the UK client created in the first place by Crash Gordon – father of the FSA. Is this really the way forward?

    Now you also repeat this mantra of “commission bias”. You know you do not have a shred of evidence for this so please can your remove it from your justifications! Further if this ever was an issue there are many simple ways around it i.e. a standard rate for all products or would that be just too easy?

    If you work harder you may even arrive at a structure identical to “commission”.

    Commission wasn’t invented or reinvested as you are trying to do it evolved and in time you will go full circle and conclude that this represents the best method of remunerating intangible products that are sold and not pruchased.

    You may of course then want to save face and give a new name!

    Finally, if you want to see what happens when you remove distribution costs just go see the sales figures for regular premiums Stakeholder!

  9. I’m glad Paul Harding like me has not got side tracked and has spotted the GLARING error in this statement, i.e. the implications for Capital Adeqaucy. realistically the capital adequacy rules were flawed where indemnity commission was concerned and in part they did need correcting. Let me explain, if the base line for capital adequacy was/is £10,000 of assets, if a firm does indemnified business of £100,000 and pays it out in salaries, although the FSA never measured it as such, effectively the potential clawback of £100,000 would gvie a negative asset figure i.e. A LIABILITY of £90k…. That was a serious flaw with the old system as indemnity commission was never factored in to the Cap ad calculations.
    If we then think about the new brave world suggested post RDR with a minumum of £20k or 3 months expenditire whichever is higher (I think that was the plans, but who knows now)
    So anyway, if I took a loan from my bank and spent it on developing my business, by buying assets such as new computer systems or even premises, year on year we deprceciate the asset value 9as we should) and the FSA will not allow Goodwill so you can’t use the loan to but anotehr IFA practice without devaluaing your capital adequacy.
    The only way what Sheila Nichol is quoetd as saing will work is if a loan from a provider is made as a subordinated loan, otherwsie the firm could fail with more liabilities than assets(which is what capital adequacy is supposed to cover to a limited extend) and once again the FSCS have to step in.
    The only loans an authorised firm can have at the moment which do NOT affect their capital adequacy are the oens from premium credit the FSA have negotiated in order for firms to spread their FSA fees and levies.
    Can someone else explain to me how what the FSA are now saying woudl work in practice as I can’t see it being any better than what has gone before….

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