The FSA is proposing to change its adviser charging rules so that clients can cancel an ongoing advice service without having to withdraw their investments.
Guidance in the FSA’s Conduct of Business Sourcebook which comes into force on December 31, 2012 requires advisers to inform the client about how they can cancel ongoing advice charges and stop payment of associated charges.
In its quarterly consultation paper published today the FSA cites the example of where advice is provided alongside fund management, and points out that in this case the client would need to withdraw his or her investments in order to cancel the ongoing service.
The FSA says: “Such a business model would not meet the intention underlying the adviser charging rules, as the customer should be able to cancel a service at any time without penalty.”
The FSA says such a business model also goes against Treating Customers Fairly principles as it could deter clients from cancelling ongoing advice services.
As a result the regulator plans to amend its adviser charging rules to refer to cancellation “without penalty.”
Under the proposed amendment clients will only be required to pay an amount equal to the service already provided by the firm, up to the date the ongoing advice service is cancelled.
Firms will also have to make it clear where charges such as fund management charges will continue after the ongoing advice service stops.
The proposed rules will also apply to a member of a group personal pension scheme wanting to cancel ongoing service for individual advice.
The FSA says it will publish final rules on trail commission later this year.