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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 published a consultation paper last week 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. 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 top-ups.

The FCA has proposed going ahead with the second option. It had initially wanted payments to stop following fund switches, but now says banning DFM payments on post-RDR top-ups is less complex.

The regulator also plans to extend the 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.

Jacksons Wealth Management managing director Pete Matthew says: “The FCA has made the right decision, as it should follow that DFM payments comply with RDR rules. One would hope that payments in relation to pre-RDR are being disclosed, so I think the regulator has struck the right balance.”

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