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Flexibility for front-end cash

The FSA has made it clear that it still wants to stop product providers determining adviser remuneration but it is willing to offer greater flexibility on future payment arrangements, including front-loaded remuneration.

As part of its retail distribution review interim report, the FSA says that it is not looking to stop providers advancing payments to advisers and recovering the costs from customers out of regular charges, similar to a front-end commission arrangement.

The regulator says it is not seeking to end the role of providers organising adviser payments as long as the provider does not determine how much commission is paid.

The FSA will be carrying out more work on this concept to understand any other risks of consumer detriment and ensure providers do not develop “workarounds” to retain influence.

Fidelity International head of IFA channel Peter Hicks gives a warning that the FSA must ensure that providers are not allowed to use different discount rates on payments as this could introduce provider bias.

The FSA says it does not agree with calls from some respondents for provider-driven commission to remain and be supervised under the principle-based regime.

As revealed in Money Marketing last week, the report floats the idea of introducing a maximum commission agreement although it accepts that there could be issues over competition.

The regulator also says it will investigate whether it could create another mechanism for ensuring charges are set fairly in a world where consumers are limited in the way they shop around.

The FSA says it understands the potential difficulties for the group pension market in moving to a new environment and that this would have to be considered.

Compliance consultant Adam Samuel says: “My concern is that the FSA has not even started to consider the difficult legal implications of removing providers from influencing remuneration. This is a good idea but faces some serious legal obstacles.”

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