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FCA adds weight to flexible adviser charging guidance


The FCA has published a statement reminding firms that clients can pay for advice on lump sum investments in instalments.

The statement follows a recommendation from the Financial Advice Market Review that the regulator should draw advisers’ attention to how they can flexibly charge clients for advice on such investments because firms were not taking advantage of the rules.

The FCA’s current guidance says that initial adviser charges for a lump sum investment should be paid upfront – either as a separate amount paid to the adviser or by deduction from the investment – except for two situations.

These are if the charge is for an ongoing service for providing personal recommendations or related services, or if the charge relates to the initial advice for a regular payment product.

Where those two exceptions do not apply, firms can offer a client credit to pay for an adviser charge, provided it “would be in the best interests” of the retail client.

The FCA statement says some FAMR respondents felt the rules brought in through the RDR had removed some flexibility in the way advisers can charge retail clients for advice on lump sum investments.

The statement says: “The FAMR report said that installment-based payments could make financial advice more affordable and accessible for some consumers, provided that the terms of the installment payments were clear and fair. The report noted that firms do not appear to be using the flexibility already permitted by the rules to offer more convenient payment options to consumers. It recommended that we draw firms’ attention to the flexibility available.”

The Personal Finance Society has previously said client-agreed remuneration – where a transparent fee is recovered from regular investment premiums – is a logical step to help clients who are put off advice because of initial fees.



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There are 11 comments at the moment, we would love to hear your opinion too.

  1. i can completely get this for a regular premium policy if the client doesnt have the cash available to pay a fee up front. However why would any adviser want to take the fee on the drip with regard to a lump sum investment? Why would they want to take advantage of the flexibility of AC payments? Answer is simple, they wouldn’t. Or based on the FAMR report they aren’t. It doesn’t make sense to do so

  2. This article doesn’t seem to make sense! You cannot pay for ‘initial’ advice on a lump sum investment by regular instalments, you can only pay for ongoing advice or reviews in this way.

  3. Think of those of us who advise clients who in their best interests need advice on existing arrangements but cannot afford to pay for it in one instalment.
    It would appear that under COBS 6.1A.23 you can but this update still focusses on lump sum investments and not recognising regulated advice on retail products. I am digging into my records but if I recall correctly we have been told categorically (in writing) by the FSA that we cannot permit clients to pay adviser charges by instalments unless COBS 6.1A.22 applies. COBS 6.1A.22 apparently does not apply in the scenario I mention so perhaps the FCA would like to clarify further? Is there flexibility in the rules to cater for this situation?

  4. Can the FCA define over what period this initial fee should be collected? (ie using a thing effectively called a backstop – an alien idea, but one they must be able to grasp).

    If over a period greater than 12 months then an adviser will need a consumer credit licence (additional cost to be passed on unless this can magically be provided at zero interest).

    If a consumer stops within the agreed ‘credit period’ they will then become liable for the entire outstanding balance at that time, or are advisers expected to try and collect this over the whole period?

    More thinking required.

  5. @ Steve D. Never done this and not likely to, however as I understand it you can charge for initial advice by instalments, but it would have to be by direct payment by the client, not from the investment as I don’t think providers offer this facility. (May be some do on pension transfer) I am sure if I am wrong somebody will tell me!
    Who would want to, you can just see yourself getting the first instalment then going to court for the rest

    • Thanks Keith S, so it’s possible via a direct fee basis and as per Sam’s observation (not AC… although I suppose you could do it via on-going AC every month {I don’t know what the maximum is that providers allow per year as a %}, but it would be rather odd to charge say 3% as an on-going monthly/annualised AC, even if it is permissible and then adjusted after say 12 months) . Although I still don’t get the rationale in taking a staged payment for lump sums as others have said! Maybe if they focused on sorting our FSCS levies, then we could charge a bit less, or is that meeting taking place in another room!

  6. In their Thematic Review into the RDR we received the following letter from the FSA dated 19 March 2014. They were reviewing our disclosure documents:

    Paying the initial charge in instalments
    You have indicated in the questionnaire that you allow clients to pay initial adviser charges in
    instalments in situations where the advice is not in relation to a regular premium investment.
    This is also reflected in your firm’s charging structure. This is not permitted under our rules.

    Except it is apparently COBS 6.1A.23. Can anyone, noting it is Christmas, get some further clarification from the FCA especially in a regulated advice scenario where there is no lump sum investment required by advice on say existing arrangements? Alternatively, from Rory Percival in his role as consultant since he was the author of the above correspondence!

  7. As well as the valid points made by respondents here, there is also the FCA comment: Where those two exceptions do not apply, firms can offer a client credit to pay for an adviser charge, provided it “would be in the best interests” of the retail client. That means you then have to apply for a consumer credit licence which not only costs but means you are then tied to all the consumer credit requirements.

    • Also adds another compliance risk as you have to justify why it’s in the client’s best interest and there’s no guidance on this as far as I’m aware. Sounds like a set up.

  8. “Gobbledygook”
    Sums this up quite nicely don’t you think ? and what we have come to expect from the FCA

    Sam’s comment highlights perfectly what a complete shower of …. our regulator (and most of the staff) really are.

  9. And what if the client defaults on the agreed instalment plan? To hell with that. If you want the work done upfront then that’s how you must pay for it.

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