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FCA board minutes reveal non-advised commission concern (and worries about pre-RDR trail)


The FCA is examining how to better distinguish between advised and non-advised sales and weighing up whether commission should be banned on non-advised business.

Minutes from the regulator’s June board meeting, published today, also reveal concerns about continued ongoing pre-RDR trail and whether this “might lead firms to act in ways that risked poor consumer outcomes”. 

The board discussed a number of “key issues” in how the retail investment market is developing post RDR. Under an item on the agenda entitled “RDR – state of the nation”, the minutes say the board discussed “the need for a clear distinction between advised and non-advised sales, particularly those non-advised models that could be misconstrued by customers as advice, such as decision trees”.

The board also talked about whether continuing to pay commission on non-advised retail investment sales posed potential risks.

FCA technical specialist Rory Percival warned in April execution-only services could be subject to advice rules if the customer believes they have received advice.

He said: “In practice, the customer’s perception is a very key determinant of whether it is advice or not. One of our lawyers, within what was the FSA, said to me, ‘If it looks and feels like advice, it probably is advice’, and that is actually quite a good test.”

The minutes also reveal concern at board level about the recent high profile exits from mass market advice. The regulator discussed “whether it was possible to further analyse the calculations underpinning the estimated costs of distribution for the banks/insurers that had recently withdrawn from the market.” The board plans to monitor whether an advice gap has emerged and if so, how big the gap is.

Axa, which closed its UK bancassurance arm in April, told Money Marketing it would have had to charge a 6 per cent advice fee in order to deliver advice profitably.

Other topics under discussion included findings from the FCA’s thematic review into how firms are implementing the RDR, published last month, around the need for advisers to spell out advice charges in cash terms and the “increased risk of churn” due to contingent charging, where charges are dependant on a product sale.

The board also discussed trail commission on pre-RDR business and whether the lack of a specific end date on pre-RDR trail “might lead firms to act in ways that risked poor consumer outcomes.”

The minutes state: “The executive explained there would be a post-implementation review in 2014 when the RDR had been in place for an appropriate period. Success measures for the policy had been published and these would be reviewed to ensure they were appropriate.”


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There are 17 comments at the moment, we would love to hear your opinion too.

  1. I wonder whether the FCA Board discussed whether it had the power to interfere in a freely entered into contract between provider and adviser.

    That its trail commission rules amount to asset theft and that the whole policy is wide open to legal challenge

  2. I wonder if the FCA really consider the consequences of their actions. All that this commission tweaking is doing in many cases is moving money from intermediaries to product providers (or in the case of some of the discounters the consumer to product providers). So in summary, RDR has in many cases meant consumers are still paying 1.5% AMC on their funds, but instead of some of that paying for advice, they are having to pay for advice seperately on top of this. Great consumer outcome from the FSA / FCA [insert missing word of your choice] board.

  3. Typical regulatory activity – walking forwards while looking backwards.

    I would have thought there was plenty to go at that is more current and urgent.

  4. ‘If it looks and feels like advice, it probably is advice’ – only if you get a legal definition, otherwise it’s just hearsay..

    If it looks like a product provider then it is probably an adviser. Is that the same sort of definition? or in this case Keydata.

    Agree with Harry, much more important things at the moment

  5. Odd way to regulate 9th August 2013 at 3:14 pm

    “In practice, the customer’s perception is a very key determinant of whether it is advice or not”
    Strange – I would have thought that after having spent so much time, money and expertise on the subject, it might be better to judge whether its advice or not by whatever the rules actually say?

  6. @garyheath – contract between provider and adviser …. hahaha

    This is why the FCA is looking at this.


  7. Peter Heffernan 9th August 2013 at 3:38 pm

    “… if it looks and sounds like advice…” Anyone for MAS????????????

  8. Don’t mean to bang the bishop but are you saying that the trail/renewal comes out of the clients capital? Think you need to check your facts

    Maybe we should have all taken 7% upfront and then there would be no way of stealing money that we have rightfully earned under a mutual agreement with the adviser and the insurance company

  9. @ Richard Bishop

    Hello again Richard. There are a number of people asking questions about you over on another article linked here:

    I think everyone is genuinely curious about your advice model

  10. Having meddled and tinkered to the point where firms have exited the market, the FCA is now concerned about whether or not this has caused an advice gap!!!!!
    Of course it has . No need to analyse things any further, thereby wasting more of our money. No need to scrutinise the costs of distribution, Common sense tells you that when regulatory costs escalate year on year it is not possible to reduce distribution costs. The FCA appear to want firms to advise for minimum charge whilst paying maximum costs in regulatory fees, PI insurance and compensation levies, What’s to analyse???
    When will these numpties wake up and smell the coffee? When they realise they are out of a job because there is no one left to regulate? Send the lot of them to a behavioural psychologist.

  11. The people I feel sorry for is the consumer as the FCA has allowed a situation to develop due to not spelling out what authorisation actually means. What I mean is how the hell does the consumer know the difference between non-advice and advice.

    The FSMA 2000 & 2012 clearly states that to give financial advice on a regulated product you need to be authorised and regulated by the FCA. That’s what the legislation states!

    The FCA rules allow certain exemptions and some ex-advisers and currents advisers are using these exemptions to build execution only and decision tree models.

    It is clear to me that the FCA need to spell out what advice is – this is the only way that the industry can both develop into a successful competitive profession and more importantly develop new blood.

    I like many advisers have spent considerable time and money getting qualified and gaining an SPS certificate. That certificate is worthless if the regulator is not going to protect the profession from unauthorised advisers. Furthermore I do not see why I should pay compensation through the FSCS for advisers who are effectively recommending execution only products when these said products fail. If an individual takes out a product through one of these providers then the FCA needs to spell out that they are not covered by FSCS, there needs to be a clear definition of the benefits of using a financial adviser.

    In respects to MAS they need to make sure that they are employing qualified financial advisers only and not unqualified staff reading from scripts. If that means that this organisations needs to train more staff, then so be it.

    I also think that providers need to report any suspicious activity it comes across in respect to unauthorised advisers.

    The rules should be the same throughout at the industry!!!!!!

    As for Grey Area and Richard Bishop, I disagree with your viewpoints most strongly and effectively believe that any type of decision tree system should be deemed to be advice. If it walks like a duck and quacks like a duck it is a duck.

    I’ve heard a lot of talk from the FCA about acting strong – this is a clear example of where urgent action needs to be taken and I encourage anybody who has an SPS certificate holder to write to the FCA to put pressure on them to act to stamp out unauthorised advice.

  12. My contract with the insurers remains that I am entitled to trail commission on pre-RDR business.

    Whatever the rights and wrongs of it, I’m entitled to it. If the FCA/FSA doesn’t like it, they should have done something about it then, not now.

  13. So the FCA has expressed concern over 1) continued ongoing pre-RDR trail and whether this “might lead firms to
    act in ways that risked poor consumer outcomes”, and

    2) “increased risk of churn” due to contingent charging.

    I hope that the FCA will consider whether the removal of 1) would increase the risk of 2)?

  14. Anon@1.25
    No they have not thought of this
    After they remove 1 they will call a board meeting to discuss their concerns re 2

  15. RegulatorSaurusRex 13th August 2013 at 2:11 pm

    If I wasn’t extinct I would be concentrating on things that really do cause consumer detriment, there are LOADS of them about right now but the FCA is looking under small stones because the big ones look too heavy.

    If the regulators are worried about trail they should ban AMCs as well, if a bucket shop or adviser tells customers to bail out of a failing fund and put it under the mattress (I hope they would do so) they would lose money more quickly than if it collapsed but why should they bother?

  16. @Peter Herd

    What you have laid out is a wish list. For the record I don’t necessarily disagree with a lot of it. For that reason I assume you are referring to my interpretation of the law rather than my ‘viewpoint’. However, in order to achieve what you want, in my ‘view’ the law needs to change.

    MAS do not give advice on regulated products. They give generic advice and information. It is not regulated and anyone can do it – because it’s not regulated.

    I don’t recall ever saying anything about decision trees. If structured correctly they do not amount to regulated advice. If not then there is a risk they would do so inappropriately and the FCA should rightly deal with it. In reality it’s not very straightforward, i.e. it’s a grey area. This is the fault of the law.

    Based on your post you would be better served campaigning to get the law changed. Asking the FCA to do something they can’t or laying out a list of demands that aren’t possible under the law as it stands is futile.

  17. To Grey Area

    We don’t need a change in the law all we need is for the existing rules to be enforced this is straight out of the FCA new handbook.

    a transaction executed by a firm upon the specific instructions of a client
    where the firm does not give advice on investments relating to the merits of
    execution-only transaction
    FCA PRA the transaction and in relation to which the rules on assessment of
    appropriateness (¦ COBS 10) do not apply .

    Problem is the FCA’s own guidelines and conduct of business sourcebook is contradictory as one hand it states that execution only should not have any guidance and in the other it allows for communication by email telephone of a general nature. The problem with this is that some companies will obviously take liberties with this type of double standard.

    I sincerely hope that if companies do go ahead with this type of telephone guidance that the FCA mystery shop said service to see whether or not they are providing personalise recommendations. I suspect that there will be many incidents where telephone sales staff break the rules as it is only human nature.

    As I stated earlier on the legislation is clear is just the FCA who underpinned that legislation with the rulebook has obviously got too many exemptions which make the rulebook almost irrelevant in its present form.

    As I’ve already stated I would like the FCA to clarify the execution only process and for them to highlight the fact that clients using the services cannot claim compensation for incorrect product selection.

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