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FSA to amend adviser charging rules

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.

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Comments

There are 19 comments at the moment, we would love to hear your opinion too.

  1. Another nail in the IFA coffin, 39 years of work to look after clients, many who pay nothing to me, but the FSA wants to remove my hard earned renewals and trail fees.
    Is this madness ever going to stop? what have we done to deserve being treated worse than criminals with no human rights or recorse to justice.

    Would someone at the FSA please tell us.

  2. Simon Mansell 6th June 2011 at 3:25 pm

    “The customer should be able to cancel a service at any time without penalty.”

    This rather dependents on how you define penalty. So If I bill the customer for X (initial) amount and waive this in return for Y (trail) on the basis that I should not in fact be paid twice. What should I not have an agreement stateing that if Y is cancelled X becomes payable in full? The FSA action seems to be anti consumer because it means we will be forced into high initial fees rather than risk being ripped off by the consumer becuase we defer fees in favour of a longer term client relationship based on trail.

  3. ironman chris 6th June 2011 at 3:35 pm

    Rod, The Banks do as they like so the only people the FSA regulate, sorry bully are the IFA’s. We are just easy pickings. Where’s are trade bodies in all of this,I know in the pockets of the FSA

  4. If I agree a fee with a client, but they wish to pay over 12 mths as they can’t afford to pay for pension splitting or transfer up advice front, if after receiving the advice do they have the right to not pay the rest of the installmenmts?
    What if a client cancelled an investment under the SNOC rules…..does this mean they will have the right to a fee refund?

  5. Our FSA fees are paid up front for 12 months if we cancelled these or reregistered would they refund our fees?

  6. This is really worrying. Years ago the maximum fee for just giving advice on mortgages was less than £10 no matter how much work had been put in. The regulator thought it hilarious that a professional adviser, liable without limit for the quality of that advice, could be forced to work for nothing.
    Although most clients are decent and honest we all know from experience that some are anything but. For the regulator to enshrine the ability to effectively breach a commercial contract, but only for one party, would never be tolerated in any other situation, only in the legal hell they have decided IFAs must suffer.
    Even if one disagrees with it, one can understand the desire to break the link between an advice and an administration service but will it be practicable? IFAs will need two contracts with a customer, a severable one for the advice which may cease and a second one purely for the administration where we remain responsible for reporting. If they don’t want to pay the latter then ex-advice customers will have to move the assets away at their own cost.
    You don’t need a crystal ball to work out how that will pan out; except the FSA will doubtless claim against any logic or evidence that it will be better for the consumer. And then be surprised that the provision of advice is harder to come by. Still, at least the regulator can honestly claim to be equal opportunity employer of the intellectually challenged.

  7. Simon Mansell – you find this difficult to understand again?

    Yes if you charge a client X, payable over 12 months….the FSA or client can’t have a change of mind and not pay you later.

    Now if you say “Ok, I’ll do all this work for you and not charge you upfront (as you can’t afford it) but you can pay me 0.5% trail” – then you might be open to trouble.

    What the FSA are trying to do is to prevent advisers getting round the fee obstacle by giving the client the power to stop an ongoing service payment when they feel like it. It’s simply up to the adviser to agree up front the amount and over how long they are to get paid.

    This ain’t rocket science.

  8. Unusual for it to appear I am sticking up for the FSA
    @ Rod commission on pre Jan 2013 should not come in to it.
    @ Andy – Unless the FSA have changed it from the previous RDR paper, for regualr premium work, if you agree a fee paid in instalments, you can hold the client to it if teh contract stops early provided your Client Agreement has made it clear, but the period it can be spread over is a max of 2 years I think. Lump sum advice costs cannot be spread over time and in anycase can be taken as a reduction in allocation rate if the product allows adviser charging.

  9. @ Micahel – If it is the ongoing service charges which the client can stop, it will be very hard for the FOS and FSA to argue AGAINST respect for teh longstop as either by stopping the charges, the client has taken on sole responsibility for the future themselves OR they have appointed another adviser. In eitehr case, the argument for time bars for professional negligence would have greater realvence. The moment the consumer stops the ongoing payment, it would be clear that a 6, 3 and 15 year clock would start ticking as the consumer would be teh one who had terminated the professional service.
    We as a firm had already instigated something similar with a view to achieving the same, by charging a modest monthly retainer so that if or when teh payment stopped we could argue teh case that it was at that date that our professional services ceased and a clock started ticking. Whether teh FOS then respected that or not, we had never needed to test, but I do think it would have made it harder for them to argue against it.

  10. There is a bit of hypocrisy here by the FSA – why can’t consumers cancel pre RDR trail just as easily? Do we switch off just post RDR trail? Just switch off part of the trail that is paying for the ongoing service? Is that right? Inconsistent FSA again….

  11. Julian Stevens 7th June 2011 at 8:30 pm

    Having given this a bit of thought, it doesn’t actually, on its own, seem to be unreasonable. If a client genuinely considers that he’s not being provided with the ongoing service for which he signed up when placing his business via an intermediary, then it could be argued that it IS unreasonable that he should be unable to switch off payment for something that he isn’t getting, other than by having to suffer the inconvenience of liquidating his investment/s.

    My concern is that the FSA will stipulate that providers must remind investors at least once a year, maybe twice a year, of their right to switch off the ongoing service charge agreed at outset, thereby regularly and actively sowing a seed of doubt in the relationship between the intermediary and his client.

    Some clients may well see each such reminder as an invitation to switch off the servicing fee and do just that in the hope that the intermediary won’t realise what’s happened and that he [the client] will still be able to access ongoing advice without having to pay for it. The intermediary will then have to go through the process all over again of explaining to the client just what the servicing charge is for which, in this day and age, is a lot more than providing comprehensive bi-annual reviews.

    We can all call to mind clients who may well arbitrarily switch off the servicing charge, particularly at a time when their investments may not be performing very well, through no fault of the intermediary.

    Is this what the FSA intends? It would be useful to know, because when all is said and done, if a client isn’t happy with his intermediary, he can easily seek out and appoint a different one.

  12. I have just dealt with a client that needed pension advice and I charged him an upfront fee with ongoing trail commission. This client had three meetings, research carried out and a full report, but felt it ok to reject the advice and take out the product direct. He signed a fee agreement and I sent an invoice for the work, only to have him say that he was not paying the bill and complained to my Network. So not only have I lost money but now I am going to waste even more through responding to the complaint. I feel so strongly about this that I may take him to small claims court

    Why is it that the system is so in favour of the consumer, no other industry can a consumer buy services complain about good service and expect to get away with not paying! After all, how many IFA’s really chased their clients for fees if it’s going to go to the complaints procedure, as we can’t afford to waste that amount of time.

  13. @Harry | 6 Jun 2011 4:32 pm 9th June 2011 at 10:06 am

    Thank you for clarifying this Harry. You do seem to a remarkable insight into the mind of the regulator. I wish I was as sure of their regulatory logic!

    SIMON

  14. For many years it has been obvious that the only way a client might anticipate a decent standard of service (post-sale) is for the IFA to be in receipt of (servicing) trail commission. This arrangement works well since the adviser is incentivised to keep the client sweet by providing on-going reviews, newsletters and access to advice in the future whether or not it might generate further earnings. Moreover, as an IFA gradually builds a trail income, there is less need for the IFA to make further sales and, perhaps, give advice that might be less than suitable, just to earn a few bob. The FSA might not agree, but it also meant that IFAs could be a little generous with their time, doing a bit of pro bono work here and there where potential earnings might be very low (maybe nil) – cross-subsidization of advice costs between the wealthiest and the poorest !!!

    The people who never really understood this (the banks, life office direct sales and those people employed by larger IFAs who might never receive any of the trail that might be generated) went out and sold life assurance bonds and took 5%, 6%, 7% or more, UPFRONT.

    Now, we have a potential situation where the regulator is actively incentivising advisers to take as high an UPFRONT fee as possible in case the on-going servicing fee is cancelled by a less-than-scrupulous client.

    Unintended consequences ???

  15. I couldn’t agree more with Simon Mansell. I have written quite a lot of business where I have waived any initial commission in good faith and agreed to only take ongoing trail commission of 0.5% for servicing the plan. If the client decides to cancel this 0.5% (and let’s face it, if you have to write to all your clients inviting them to cancel the ongoing commission, there will inevitably be some who do). It seems that I may have shot myself in the foot for treating my customers fairly over the years. What a sham, the FSA are completely out of touch and should employ people who have actually been advisers and realise just what we actually do for our clients.

  16. Don’t get excited chaps, this is probably just the start.

    I think we should instigate a bit of reverse psychology.

    Lets not charge the clients at all and do it for free.

    Then the FSA may feel this is unfair and insist we charge a fee.

  17. For too long many financial advisers tried to position their advice as free while relying on commission from sales. Most are now making the sometimes painful transition to fees, but at the back of many consumers minds is still the idea that advice is/ ought to be free. Many non FS businesses that sell product still offer “free” advice.

    @anonymous please take this non paying client to court. As a profession we all need to stand up for ourselves far more!

  18. Trevor Whiting 13th June 2011 at 8:45 am

    Our retainer fee agreements are cancellable at any time by both parties; we are confident of the service we offer and as such would never seek to tie in a Client if they were unsatisfied in any way with the service proposition, get real!

  19. don’t see any issue here, if you stop the ongoing fee then i stop working for you and you can take your business anywhere you want. If i have agreed a fee and you you don’t pay me then i’ll chase you for it and charge you for the hassle.

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