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FCA allows pre-RDR DFM ‘kickbacks’ but bans new payments for top-ups

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The Financial Conduct Authority has decided to allow “kickback” referral payments to advisers from discretionary fund managers on pre-RDR business, but banned new payments related to DFM top-ups.

The regulator has published a consultation paper today which proposes to ban post-RDR DFM referral payments to advisers where the adviser has recommended the client should pay more into the DFM-held investments. DFM referral payments for pre-RDR business will be allowed to continue.

The rules will come into effect on 31 December 2014 if agreed.

Under the RDR the FSA banned DFM payments to advisers where clients are referred to a DFM and provided with a personal product recommendation.  

In February the FSA sent trade bodies a briefing note setting out four options for legacy DFM referrals: 

  • switch off all referral payments following a transitional period;
  • allow payments for pre-RDR referrals but ban them for post-RDR top-ups;
  • allow referral payments to continue on original investments but turn them off following fund switches, echoing the position on trail commission; and
  • allow payments for pre-RDR referrals but reduce the level of payments for post-RDR recommendations to pay more in to DFM-held investments.

The FCA has proposed going ahead with the second option. It had initially wanted to adopt the same position as it took on trail commission, with payments stopped following fund switches, but now says banning DFM payments on post-RDR top-ups is less complex to administer.

The regulator also plans to extend the DFM referral payments ban to advisers who continue to provide other services to clients referred to DFMs, such as providing the client with market research or passing information from the DFM to the client. Referrals payments can continue to be paid to non-advised firms or firms acting purely as introducers, where the introducer has no further contact with the client.

The FCA says: “These proposals should be considered with the new approach of the FCA. Our new approach to supervision, assesses whether a firm is being run in a way that treats customers fairly.

“Where firm-specific assessments are carried out, firms will need to answer the question: does the firm have the interests of its customers and the integrity of the market at the heart of how the business is run? As part of the new approach we will expect firms to comply with the spirit of our rules as well as the letter, and adapt their business model accordingly.”


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There are 5 comments at the moment, we would love to hear your opinion too.

  1. RICHARD WRIGHT 4th July 2013 at 12:06 pm

    I really wish MM Journolists would stop using buzz words and meaningless Industry talk. Ive been in the business for 30 years and if I cant understand ” “kickback” referral payments to advisers from discretionary fund managers ” then my clients certainly wont.
    Please Please Please speak in plain English that we can all understand!!!

  2. When they’ve sorted this what will they look at next to tinker with? An adviser giving say; advice to someone to top up their pension (a good thing surely?) can’t in the future be paid by the provider for the top up. Where do the guys who make these rules get these ideas from, and how is this benefitting the client exactly?

  3. Dick Sprinkler 4th July 2013 at 12:24 pm

    @ Richard

    Amen to that although its not just journos its the regulator and assorted vested interests too.

    B+llshit baffles brains me thinks – if you dont know what you are talking about talk in buzz words and acronyms !

  4. In most areas of life, if a business (IFA) provides a commercial benefit to another business (DFM), and the Client benefits, then what business is it of the FCA to meddle in commercial transactions.
    If the relationship and payment to the IFA is clearly discussed and agreed with the client, what’s the problem?

    Ah, yes that would be far to simple for those bungling intellectual midgets at canary towers to grasp. Their modus operandi ( once they have woken up from their slumbers on the job) is:

    ‘Find a pathetically small issue,interfere and louse it up. Whatever the consequences, just make sure we louse it up and devil take the hindmost’.

  5. @ Old Dog

    Whilst you are technically correct, the problem is with the ‘if’ in your post. As in:

    If all MPs were honest and trustworthy what’s the problem?

    If all journalists were honest and trustworthy what’s the problem?

    If all regulators were…

    You get the picture.

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