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FSA will allow flexibility over claiming charges

The FSA says where adviser charges are paid through a product, providers will be able to deduct the charge before or after the client’s money is invested.

In an RDR consultation paper, published last week, the FSA says providers can either pay the full amount received from a client into a product and then deduct the charge, or can deduct the adviser charge from the amount received and pay the remainder into the product.

For product sales data, providers must report the amount paid into a product, irrespective of whether adviser charges have been deducted or not.

The FSA says this applies to vertically integrated firms as well as firms facilitating payment for a third-party advice firm.

Where a client cancels a product after the adviser charge has been paid, the FSA says refunds from the provider can be net or gross of the adviser charge. It says it is up to providers and advisers to agree a procedure, as long as it is made clear to customers in advance of any sales.

The FSA says where a customer is not required to pay an adviser charge if they do not purchase a product, the refund can be made net and the customer would then need to contact the adviser for a refund.

It says if the adviser charge has not yet been paid to the adviser, the refund could be made either gross or net, subject to any HMRC or DWP rules.

Where a consultancy charge is facilitated through a group personal pension that is an auto-enrolment scheme, DWP rules apply instead of FSA cancellation rules.

The DWP rules require refunds to be paid gross, so if a consultancy charge has already been paid to the adviser, the provider would need to seek a refund of the charges from the adviser.

If an adviser charge for individual advice to a member of a GPP is being facilitated through the product, the refund to the customer on cancellation would also need to be paid gross.

“The provider would need to seek a refund of any charges already paid from the adviser, who would then need to contact the customer regarding payment of any outstanding adviser charge.

Evolve Financial Planning director Caroline Hawkesley says: “The FSA’s flexible approach to these details is great, because it allows firms to adapt adviser charging to suit their business model.

“For advisers that are currently transitioning to adviser charging, it is important that they put a clear process in place to deal with all types of outcomes, such as cancellations.”

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Comments

There is one comment at the moment, we would love to hear your opinion too.

  1. This tends to reinforce my opinion that it’s best to charge a non-refundable fee for your ADVICE before any product is recommended or implemented. That way, the client can’t wriggle out of having to pay anything by exercising their right to cancel. Not that we get any clients exercising their right to cancel these days, but we have in the past had the odd client do exactly this in the knowledge that we wouldn’t be able to bill them for our time.

    I still maintain that if you’re providing advice as opposed merely to recommending a product, you should require the client to pay at least a third of the total costs before the presentation of any application form/s. In fact, I don’t think it would be a bad thing if the FSA made it mandatory for intermediaries to charge a third of the total advice costs pre-sale. Such an edict might well put a stop to excessive post implementation charges, which CAR will probably moderate but not eliminate altogether.

    I would be interested to read what other people think.

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