The FSA is consulting on changes to adviser charging rules to ensure advisers do not receive “kick-back” payments for referring clients to discretionary fund managers after 31 December.
The regulator says under the RDR, advisers should only be paid for the personal recommendations and related services they provide to their clients through the charge agreed with their client. They should not be remunerated by discretionary investment managers.
The FSA has set out its expectations on DFM payment to advisers as part of its quarterly consultation paper published today.
The FSA says: “Payments from discretionary investment managers, or the provision of non-monetary benefits have the potential to bias advisers towards discretionary services and, if payments vary between discretionary investment managers, to bias advisers towards recommending discretionary services that pay the highest amounts.”
The regulator is planning to impose a ban on payments from DFMs to advisers where the adviser has referred a client to a DFM and also provided the client with a personal recommendation on a retail investment product.
If there are occasions where the adviser recommends a client to a DFM and maintains on ongoing relationship with the client, but never provides a personal recommendation to that client, the FSA says the adviser firm would be able to receive a referral fee from the DFM. However it is also consulting on whether the payment ban should extend to those firms as well.
At this stage the ban is only being applied to referrals set up after 31 December.
The FSA says its preference is to treat existing referral arrangements in the same way as trail commission, where payments can continue on business set up before the RDR deadline where there are no changes to the product.
The FSA says: “As with trail commission, our preference is adviser firms receive no additional remuneration post-RDR for recommending that a client invests more money through their discretionary-managed portfolio. The adviser firm could continue to be paid by the discretionary investment manager for the investment amount resulting from a pre-RDR referral.
“We are considering consulting separately on transitional arrangements for existing referral payment arrangements, including the possibility of carrying out a cost benefit analysis on our proposed approach. In considering an appropriate timescale for making rules for transitional arrangements, we will take into account the time required for firms to make the necessary system changes.”