The FSA’s proposal to ensure clients can cancel ongoing adv-ice charges without withdrawing their investments could have significant implications for firms’ adviser-charging models.
In its quarterly consultation paper, published this week, the FSA raises concerns about models that include ongoing advice within an overall service, such as advice provided alongside fund management. It says in order to cancel the ongoing service, the client would need to withdraw his or her investments.
The FSA says: “Such a business model would not meet the intention underlying the advisercharging rules as the customer should be able to cancel a service at any time without penalty.”
The FSA says these business models also go against treating customers fairly principles.
It plans to amend advisercharging rules so that clients only 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 clearly state that some costs, such as fund management charges, will continue after the ongoing advice is cancelled.
Syndaxi Chartered Financial Planners managing director Robert Reid says: “I have been saying for a long time that advisers will have to unbundle advice from investment charges. This proposal has big implications for firms, particularly those who are relying on trail commission for ongoing advice. The crunch point will come when people want to cancel ongoing advice charges and the technology will not be there to do this.”
Plan Money director Peter Chadborn says: “This is the tip of the iceberg in terms of the debate around charging fees as a percentage of investment. It may force advisers down a more unbundled, transparent route of fixed fees for specific services rather than a percentage of trail.”