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FCA: We won’t be prescriptive but should fees mirror old commission levels?

FCA director of long-term savings and pensions Nick Poyntz-Wright

The FCA says it does not intend to be prescriptive about fee models but has raised concerns about post-RDR charging structures which closely resemble previous levels of commission paid to firms.   

Speaking to Money Marketing today following his appointment as FCA director of long-term savings and pensions, Nick Poyntz-Wright says the regulator will continue to monitor how the market is developing following RDR implementation.

He says contingent charging, where the advice charge is only payable when a product is sold, is an issue the FCA was “observing”.

He said while it would be wrong to be prescriptive about how advice firms set their charges, the regulator will continue to highlight charging structures which it sees as problematic.

Poyntz-Wright says: “From the evidence we saw, which was only a sample, many firms seemed to be continuing to adopt the same kind of charge levels they would have been experiencing before the RDR, but are now expressing these as adviser charges rather than as commission.

“We would expect that over time more and more firms would revisit that and think about whether that is the most appropriate approach, and how it suits the different customer segments they deal with.

“If firms are waiting for us to be clearer on this or give more direction, I would encourage them to be thinking about what is most appropriate for them and their customers.”

The FCA announced earlier today it had appointed four new directors as part of a restructure of the regulator’s supervision team.

Poyntz-Wright was appointed to head up the long-term savings and pensions division, which will cover insurers, advisers, platforms and wealth managers. He has been acting long-term savings and pension director since April.

Former HBOS principal risk adviser Karina McTeague has been appointed as director of retail banking supervision, Linda Woodall has been appointed as director of mortgages and consumer lending, and William Amos becomes director of wholesale banking and investment management.

Last month the FCA published its early findings on how firms are implementing the RDR, which flagged concerns around how charges are being explained to clients, disclosure of firms’ independent or restricted status, and explanations of ongoing service.


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There are 27 comments at the moment, we would love to hear your opinion too.

  1. incompetent regulators 7th August 2013 at 3:59 pm

    bit of back tracking for once!!

  2. Well, I, for one, am not in the least surprised! As an IFA (forced into retirement by RDR) I saw no problems with commission. All it needed was a maximum commission level per product – simples! I see that several equity release firms charge a fee as a percentage of the amount released. That is commission really.

  3. If the FCA were serious about this they would not be raising it as an issue but simply getting on with the job of feeling the collars of the perpetrators. To say that ‘we won’t be prescriptive’ is just code for ‘we shall let SJP off the hook because they’re too big and too influential’. ‘Twas ever thus.

  4. I don’t want to state the blooming obvious ! but your right, we need to be charging more than we used to get from the old commission rates to pay for the feathers you use to line your nest with.

    You are just cuckoo’s really aren’t you ?

  5. “Doesn’t intend….”. That would be the same “”doesn’t intend” that did away with consumer choice by removing commission as a payment alternative.

    What are businesses supposed to do? Offer our services for free? Sorry, I forgot the MAS does that. Seriously though, how are we supposed to meet the new capital requirements other than by making a profit. Yes, I know that “work in hand” and “invoices due” can be counted (wonder how many business will be using that as the way to meet the requirement) but in reality, like it or not Mr FCA we to make money/profit from clients and, frankly, the more the better. Will consumers pay less under RDR – don’t think so!

  6. Maybe we should increase them to reflect increasing regulatory and PI costs?

  7. The whole idea of RDR was to get rid of transactional charging. Firms who have simply tippexed out the word commission and substituted fee are living very dangerously. Read the article again: this is a shot across the bows, SJP.

  8. incompetent regulators 7th August 2013 at 4:41 pm

    a very close and reliable source knows an X FSA staff member who has confirmed to me what we all think on the outside, they understand very little of what goes on in the real world.

    As someone has already pointed out CUCKOO LAND or BONGO BONGO

  9. The FCA have no idea how to run a financial business. They are all cocooned in their big big shell paid for byus. If they want to see charges lowered then reduce fees move out of Canary Wharf and pay Wheatley what he deserves!!!.Stop being so bloody stupid and get riod of the contentious points of RDR

  10. does the car salesman receive commission if you don’t buy a car??
    Do the FCA not charge regulatory fees based on the amount of turn over we do???

  11. OMFG!!!, FCA get over it and go after the scammers, crooks and baloon yeilding clowns.

  12. The 3% – 4% initial and 1% p.a. annual commission – oops ! Fees I have been quoted based on investment funds available of £600,000 must be quoted in £’s ie :- £18,000 – £24,000 upfront and £6,000 p.a.- totally outrageous. IFA’s or should I say ex insurance salesmen are living in cloud cuckoo land ! !

  13. battle to stay positive 7th August 2013 at 8:33 pm

    I sometimes wonder who is actually missing the point us or them?
    The point being what was RDR there to do?

    Increase Standards – Exam level increased – Fair

    Remove bias – Set remuneration levels not
    dependent on product provider – Fair

    Be clearer on charges – Remove Commission – Fair

    Stop being paid for no ongoing service – set retainer/servicing agreements – fair

    Restore Confidence – All of the above – Fair

    Change from the old fee model????? absolute rubbish and not a fair point ! –
    Why ???
    It meets all of these stated objectives of RDR. Client knows how much they pay – Good thing
    Client agrees with how much they pay – Good thing?
    Stops the 7-10% initial commission being sucked out of clients – Good thing
    Clients don’t like the on going service the shut it off – Good thing

    What is going on …………………………….??????
    Words …..
    Yes Words…………..

    I have none for this !

  14. How come when the FSA/FCA revisit their charging structure it always goes up yet we are expected to go down? There`s a lemming like theme here and if we cannot afford to work, how can they?……………..Oh yes I forgot about their Banking safety net.

  15. Clients are unlikely to pay a fee for saying I recommend that you invest your money into xyz and then we say then get on with it! They have no idea about share classes, which type of bond, gross roll up, capital gains taxes and ISAS! The FCA wants us to give advice and no product is sold, I do this regular for people who don’t understand risk but want to invest money into an asset backed investment with no risk! I usually explain that this is impossible and walk away without charging them, as I don’t want a potential complaint in the future by selling something to someone who does not get the product. I am sure if I said then you owe me 150 pounds for that advice I would get told where to go!

  16. And this is the free capitalist democratic world?

  17. Dear FSA (sorry FCA I almost forgot you spent however many millions of the money we provide to you on a very expensive re-brand) why don’t you just come out and say “we don’t want an adviser community” and be done with us once and for all?

    Perhaps you should take over regulation of HMRC and tell them they can’t take a percentage of our earnings in tax and NI, not to mention VAT?

    Don’t you understand that any remuneration has to be agreed with the client before any advice is given. If the client is happy with the service they have received and for the fee they paid for that advice why can’t you just leave us alone for a little bit?

  18. The FCA is right to be concerned about the fee structure being the same as the old commission rates that used to be paid. Their concern should be how we will stay profitable (as we are required to do) with escalating costs. I for one have increased my charge from 3 + 0.5 to 4.5 + a scaled annual fee between 0.75 and 1.25 (if they want ongoing service) depending on what the clients want from me on the first £200k with an overall minimum of £645. Implementation fee is negotiable above £200K. The minimum is there to ensure ISA doesnt cost me anything to do. I simply could not have carried on at the old rates with all of the increased costs of regulation (16% last year and 13% for the FCA – Never mind FSCS and PI). We all know they would like us to reduce what we charge clients but as so many have said above (and before) they simply have no idea how a commercial enterprise needs to be run in order to keep in the black. As in all lines of business the end user pays for increases because in business the customer always pays. There is just no getting round that. If the FCA et al would reduce what they charge I would be more than happy to do likewise (as I am sure a lot of others would do). I think they are under the illusion that small adviser firms make the same kind of percentage profits that huge institutions do and so can just absorb the hikes in our fees. In my view there is nothing wrong with working on a “contingent basis” as long as its done with client’s agreement. I do offer the choice of direct fees, regardless of any end product being purchased or fees paid by implementation only and guess what? Since the start of the year I have not yet had one client say to me that they would prefer to pay me directly whether or not my recommendation leads to a transaction. There has been too much client choice removed from our business and the last thing we need is for even more choice to be removed. Why do the FCA not do a very simple survey which asks say 10,000 people in the streets “if you were to take financial advice would you like to pay for it even if you didn’t act upon it, or would you prefer to simply pay for the advice if you took up recommendation/ bought a policy or investment?” Not that I am cynical but I think that most of us know what the huge majority of answers would be Plus it would be a good sized sample, not some of these piddly ones we hear about of 1000 or less were researched.

  19. Simon Dickerson 8th August 2013 at 8:32 am

    Re Anonymous 7th August 2013 5.10pm- it is this attitude that has given financial advice such a bad name………. Why on earth would you want to compare yourself to a second hand car salesman?
    If our industry is to have respect then we should be compared to Accountants …. client DO need advice without products, frankly however poorly implemented by the FSA, RDR and getting rid of commission had to be a no-brainer if we are to have credibility and not seen as salespeople

  20. As far back as January I was advising that contingent fees were under threat. RDR is about TCF, commission was banned because it let to anti-tcf behaviours. Contingent fees that look and act like commission….why the surprise when the FCA say they are looking at it? It was utterly predictable.

  21. “If firms are waiting for us to be clearer on this or give more direction, I would encourage them to be thinking about what is most appropriate for them and their customers.”

    This rather implies that they haven’t decided themselves what they really want. If you know, tell us.

    What happens if we think long and hard but end up with a different conclusion to the FCA when it finally comes out of this ‘grey area’?

    If clients are willing to pay fees that resemble the old commission structures then maybe, just maybe, there was nothing wrong with it in the first place.

    @ Simon Dickerson – perhaps we could compare ourselves to other professionals like solicitors too? Oh, wait, don’t they employ a ‘no win, no fee’ option? They also offer insurance on fees too… must be great having that kind of commercial freedom. And on the subject of accountants, I have employed VAT specialists in the past on a percentage of rebate basis. No rebate, no fees. Commission? From a professional? Surely not…

  22. I think they are referring to the new SJP fee model, which is merely the old SJP commission model renamed.

  23. So we prepare for RDR, and change our business model, we put in service agreements well before RDR implementation date. So is it any wonder the FCA find that pre RDR models are in place its called good business planning, speaking to many IFA’s pre RDR they were doing exactly the same.

  24. Can someone clarify what RDR was for?

    I was under the impression that it was to make sure that all advisers clearly communicated to clients that taking advice would cost them directly i.e. come out of their investment directly or they pay it from their bank account.

    I did not realise that secretly RDR was for the FCA to start telling advisers how to go about agreeing advice costs with clients and dictating how much can be charged.

    I have said it before and will say it again, it is the FCA’s job to dictate how advice costs are communicated to clients, it is the advisers job to decide how the advice charge is calculated and finally it is the clients job to decide if the cost of advice is worth it.

  25. For the vast majority of honest hard working IFAs, there is no problem with transactional charging. Unfortunately, a small minority of unscrupulous gold diggers have made it necessary to change the way clients are charged. Even more unfortunately, firms like SJP have exploited their dominant position in the market to fly in the face of the spirit of the new regime and have continued to charge transactional commission post RDR.

    The FCA is unable or unwilling to take enforcement action against a firm the size of SJP but the article above indicates that they are at least willing to fire a shot across the bows. If I were senior management at SJP I would be starting to sweat just a little bit.

    Maybe it is time for SJP and their like to start paying more than lip service to the principle of non transactional charging. After all, with a company of that size and with the number of “partners” they (don’t) “employ”, there are bound to be one or two bad apples …………..

  26. If the likes of SJP are complying with the rules (and I’m sure they are) but it’s not the outcome the FSA/FCA wanted then the problem is one of three things.

    Firstly, the rules were badly drafted.

    Secondly, the outcome the FSA/FCA is after isn’t actually within their remit and so they couldn’t draft the rules to achieve it even if they wanted to.

    Thirdly, they would fall foul of competition and EU laws if they did introduce rules to achieve their desired outcome.

  27. FS funny quotes dot com

    “We thought that if we could raise standards everyone could become a stockbroker”

    H Sants


    Still wondering what he meant.

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