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FSA confirms adviser charging rules

The FSA has published final adviser charging rules which confirm that where adviser charges are paid through a product, providers can deduct the charge before or after the client’s money is invested.

In November, the regulator published an RDR consultation paper on adviser charging. The proposals have not changed and have now been passed into rules, set out in the FSA’s policy statement, published today.

It states that providers can either pay the full amount received from a client into a product and then deduct the charge, or deduct the adviser charge from the amount received and pay the remainder into the product.

For product sales data, providers must report the amount paid into a product, irrespective of whether adviser charges have been deducted or not.

The FSA says these rules apply to vertically integrated firms as well as firms facilitating payment for a third party advice firm.  

Where a client cancels a product after the adviser charge has been paid, the FSA says refunds from the provider can be net or gross of the adviser charge. It says it is up to providers and advisers to agree a procedure, as long as it is made clear to customers in advance of any sales.

The FSA says where a customer is not required to pay an adviser charge if they do not purchase a product, the refund can be made net and the customer would then need to contact the adviser for a refund.

It says if the adviser charge has not yet been paid to the adviser, the refund could be made either gross or net, subject to any HMRC or DWP rules.

Where a consultancy charge is facilitated through a group personal pension that is an auto-enrolment scheme, DWP rules apply instead of FSA cancellation rules.

The DWP rules require refunds to be paid gross, so if a consultancy charge has already been paid to the adviser, the provider would need to seek a refund of the charges from the adviser.

If an adviser charge for individual advice to a member of a GPP is being facilitated through the product, the refund to the customer on cancellation would also need to be paid gross. The provider would need to seek a refund of any charges already paid from the adviser, who would then need to contact the customer regarding payment of any outstanding adviser charge.


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There are 4 comments at the moment, we would love to hear your opinion too.

  1. Well thats clear then. Lets just screw the advisers by having all their work done for clients moved to a clawback situation even for lump sum biz. I am sure if a solictors client or accountants client changes his mind on the advice he gets I am sure these professionals give refunds of fees paid……. Oh maybe not. Best just move to upfront non refundable fees from client for the work done.

  2. bright but still in the dark 22nd March 2012 at 3:01 pm

    I don’t understand the article and I bet that when I read the paper itself it wont be clear to me either. What do I do?
    I have been in this line for 35 years

  3. Marty – maybe you should re-read the article. That’s not what it says at all. It’s up to you to agree the clawback situation with your client in advance.

    The FSA has given you the opportunity to agree your fees like solicitors and accountants do!

  4. Marty, I would be interested to know which product providers that you currently use that don’t claw back any commission paid on a lump sum investment if it is cancelled under the cooling off period? As far as I am aware, ALL current products will claw back commission if “cancelled from inception”.

    What these rules do is offer the opportunity to agree with your client the fee and whether or not it is “contingent” on the policy being taken out. If the client decides to send back the cancellation notice and you have agreed that the fee is NOT contingent on the policy being taken out the you get to keep your fee even if the policy is cancelled.

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