It has ruled out a total ban on commission for now, partly because it may contravene the European Mifid directive, but the retail distribution review feedback report has said independent adviser firms must remove provider influence over adviser remuneration and set their own charges for advice. Both independent and non-independent advisory firms must separately disclose the cost of advisory services and product costs.
Providers will not be able to predetermine commission levels or include commission within product prices for IFA firms.
Product providers will still be able to have adviser costs deducted from their investments but factoring, payments made by providers out of their own funds and typically used for indemnity commission, will not be allowed after 2012.
The FSA has said that IFAs will be expected to set their charges in advance of client meetings, rather than on an ad hoc basis, and make it clear what services clients are to receive.
Clients should also be offered a range of payment options, such as an up-front fee, spreading the charges over several regular payments or having the charges deducted from an investment.
The FSA will be consulting on the changes next year, with advisers required from 2011 to set their own charges, with rules stopping providers det- ermining or pricing commission products coming into effect in 2012.
Evolve Financial Planning director Jason Witcombe says: “It would be a more level playing field and more transparent if commission was removed. But equally, allowing clients to pay for advice through factory gate pricing will help them with their cashflow if required.”