IFAs will only be able to describe themselves as independent if they operate a new system of payment designed to prevent commission bias. Independent advisers will have to use what the FSA is describing as a “defined payment” system.
The regulator says this requires an upfront agreement between the customer and the IFA which defines in advance the amount to be charged. It says this could be a fixed total charge, a fixed regular charge, an hourly rate, or an annual percentage of funds for portfolio management activities.
It says in return for payment the IFA must rebate commission into the product, offset any commission against the fee or pay any excess commission into the product.
The paper also says a fee conditional on the purchase of the product will be regarded as commission. The FSA says it wants the changes to be implemented by the end of the year.