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FSA set to clarify DFM adviser payment rules

FSA Front 480

The FSA is planning to outline explicit rules which prevent payments between advisers and discretionary fund managers.

The regulator will issue a consultation in the autumn setting out clearly that no payments can be made to advisers who are outsourcing investment management to a DFM.

FSA head of investment intermediaries Linda Woodall says: “We expect discretionary managers to stop payments to advisers if that adviser continues to offer advice to a client in any form, not just on the assets held by the discretionary manager. We will be clarifying these rules shortly.”

An FSA spokeswoman says although the regulator felt its rules on adviser charging under the RDR were already clear, the consultation will look to specifically address the issue of payments by DFM services from next year.

The FSA told adviser firms in July to clearly explain to clients the DFM’s role where there is no direct contract in place between the DFM and the client. The statement was made as part of the regulator’s final guidance on centralised investment propositions and replacement business.

Page Russell director Tim Page says: “This is a little fire that is flaring up around the bonfire that is the RDR. The FSA policy team is just plugging any loopholes and ensuring its RDR rules are watertight.”


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There are 7 comments at the moment, we would love to hear your opinion too.

  1. FSA head of investment intermediaries Linda Woodall says: “We expect discretionary managers to stop payments to advisers if that adviser continues to offer advice to a client in any form, not just on the assets held by the discretionary manager. We will be clarifying these rules shortly.”

    WHAT does that mean? My english is generally good, but I do not understand this newspeak. Can anyone help?

  2. What does this mean? Can someone help clarify this please? Does is simply mean no trail commission payable to the adviser? Does it also exclude (or include) the collection and payment of the adviser’s fee by the DFM under a fee agreement with the client?

  3. Could it get any worse ? If anyone has any doubt left that the FSA is intent on killing every IFA business, then surely this must be the final evidence.

  4. The word ‘clarify’ and ‘FSA’ are an Oxymoron. Nothing that comes out of Canary Wharf is either clear or simple. It would seem that they are totally unfamiliar with the English language.

    As I understand it there is a very important difference between ‘Outsourcing’ and referral.

    In the former you cannot outsource to (say) a DFM unless you have the equivalent permissions yourself. i.e. Discretionary powers. If that is the case one wonders why you would want to outsource anyway.

    In the second case – Referral – that’s OK – PROVIDED there is no financial consideration nor does the referrer have any further input or advice regarding the funds referred. It may well be that there are other funds (say a pension or some ISAs) that remain in the referrers care – in which case as I understand it – that may continue.

    Wouldn’t it be nice if the canaries could confirm this (or otherwise) in plain unambiguous language.

  5. The FSA is going to clarify the rules shortly. WHAT !? Do they actually understand the implications and ramifications of any of the rules that they make up on a daily basis. Does the FSA have any idea about the damage it is doing to those people who have been the most upstanding within the adviser community, or the harm it will do to ordinary people who need guidance on financial matters or the negative impact its ill-thought-through RDR will have on the UK economy. These pigmies should be emptying dustbins – instead they receive fat paychecks, bonuses, gold-plated pensions and knighthoods. Will we ever be free of thes tyrants.

  6. I hope this is once again poor reporting from MM on this subject. If you are basing the ban on payments from DFMs on Woodhall’s quote then I believe this is the case.
    Any legacy payments received form DFMs on pre RDR business will have to switch to adviser charging if new advice has been given. It is very difficult for the DFMs to determine when advice had been given (especially if FSA follows through on non related advice).This is why many DFMs are looking to redocument cases to an adviser charge model on more secific remuneration terms e.g. previously the client signed up to an inclusive fee say 1.25% p.a. of which 0.5% is paid to the IFA but under new terms it will have to be more specific i.e. 0.75% to DFM and 0.5% to IFA. Any share of dealing commission will have to stop.
    It is important to check with any DFM companies what their pratice is going to be post RDR. Some are ahead of the game and offering clear guidance and redocumentation packages.
    Of course if I am wrong and MM are correct it will be devasting to companies who have followed an outsourced model and to the DFMs who rely on IFAs.
    Although this makes good copy and stimulates very angry responses much of MM reporting on legacy, VAT etc has been extremely poor and I beleive this another example

  7. This is clearly an attempt to create yet another abyss for IFA’s to fall into. You are not allowed to continue to earn from servicing your clients investments and continuing to monitor DFM performance, but if you pass them everything and do nothing more for the client you are allowed to continue to earn? I can see it now at next compliance visit. “You do not seem to be making any DFM referrals, this we find incongruous with being independent”
    Come on FSA why not just let the dust settle and not change anything for a while instead of this constant “clarification” that achieves absolutely nothing except confusion. Stop justifying your existance by making unnecessary changes.

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