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IFAs won’t be hit by client money rules

IFAs will not be deemed to be holding client money when they rebate commission under a menu fee arrangement, the FSA has confirmed.

Aifa director general David Severn raised concerns that the menu system could lead to IFAs effectively holding client money when they get commission from providers under fee arr-angements. This would place them under onerous client asset rules designed to safeguard consumers’ money.

But the FSA says IFAs will be able to continue to operate after June 1 without invoking client money rules, even when they get trail commission.

Director of retail policy Dan Waters admits it would be “disproportionately onerous” to apply the full rigour of the rules to these situations.

The FSA says it will do all it can to ensure that most IFA firms are not brought within the European Union Mifid rules – hitting the UK in 2007 – which will ban firms from being indebted to their clients.

Waters says: “Firms operat- ing fee agreements where commission is rebated to the client, either directly or by holding excess amounts against future fees, will continue to be able to construct their fee agreements in such a way that client money rules are not engaged.”

Severn says: “The FSA app-ears to be saying that the client money rules do apply but, given the preparation for depolarisation that IFAs have to do, it won’t apply to them.”

Skerritt Consultants head of investments Andrew Merricks says: “I do not think that IFAs really have much of an excuse if they get this wrong.”


Daniel Godfrey

Daniel Godfrey has taken some hard knocks over the last seven years in what is arguably one of the hottest seats in UK financial services as director general of the Association of Investment Trust Companies.

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