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MM Leader: Adviser charging is still a major concern

With around seven months to go until the implementation of the retail distribution review it is worrying to find respected industry commentators raising significant concerns about charging models.

The fact these individuals have been passionate advocates of the FSA’s drive to increase professionalism and charging transparency should make the regulator sit up and listen.

As Syndaxi Chartered Financial Planners managing director Rob Reid eloquently expressed in a recent issue of Money Marketing, there are likely to be significant tax implications for both individual and group business when advisers take charges from the product in various scenarios.

Although charges for pension advice can be taken from the product, advice on other products, such as Isas, cannot, even though they may well form part of the same advice process. Implementation costs also risk an unauthorised payment charge.

Not allowing implementation costs to be taken from the product gets even more troublesome with consultancy-charging. Money Marketing revealed this month that HMRC is working on revised guidance in this area but could not confirm when it would be ready.

Another payment option is using a platform cash account, although the FSA’s current position on banning cash rebates, despite the lack of evidence of market bias, is not helpful.

The ability to take charges from the product has been pushed by the FSA throughout RDR consultations as a means of ensuring advice remains attractive and affordable but industry commentators are warning of a mis-match between what advisers want and what providers are likely to deliver.

Earlier this month, Personal Finance Society chief executive Fay Goddard, a firm supporter of the RDR, warned in her Money Marketing column that advisers need reassurance that adviser-charging facilitation will be ready in time for January 2013.

Providers will be coming to market with a range of different adviser-charging methods which may or may not meet needs of individual advisers. This may worry the regulator that charging methods are influencing product selection but the ABI’s hands are tied to an extent as too much co-operation may breach competition rules.

Reid and other advisers have offered their help to the FSA and HMRC in finding solutions but the clock is ticking.

The regulator should not be afraid of pushing back the RDR’s timeframe if it means a smoother implementation of the rules for advisers and clients.

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Comments

There are 4 comments at the moment, we would love to hear your opinion too.

  1. I am glad that this has come to the fore as lots of industry commentators have been saying for a very long time there are deep flaws withs parts of the RDR and it should not go ahead until these have been sorted out properly so no consumer detriment occurs as a result of RDR and it does not have a any negative impact on advisers. Sadly the FSA have not been listening to reason and will not seem to budge on this regardless of how many attempts to point out the defects in their proposals are there. I would suggest that any attempts to help the FSA wait until Hector Sants goes or like all other suggestions they will fall on deaf ears – unfortunately he couldnt care less and that would still be the case if he wasnt leaving. All we can hope for is that influential industry figures meet with Martin Wheatley asap after June 30th to point out all of the down sides of the RDR and unintended consequenses that have arisen so he can put a delay on this until it can be fixed. It has cost too much money thus far and will cost so much more to the indusrty and ultimately to the consumer to get this wrong, and wrong it is.

  2. The RDR has to be delayed. No commercial organisation would allow such a seriously flawed plan to be put into effect. All shareholders would protest and the board would be sacked! The potential problems and implications would be resolved first and dismissed if unworkable. Why should the FSA act differently against all common sense and logic…
    It’s NOT too late to take action and save face.

  3. Delay RDR! Heaven Forfend!

    We hve been ordered to jump off the cliff without parachutes and only the fittest will survive the fall, by edict of the Financial Stitchup Authority.

    Delaying implementation of RDR would mean the regulatory body would lose face.

    It will never happen. Live with it and get with the program. (just joking honest!)

  4. Julian Stevens 25th May 2012 at 8:19 pm

    Defined charging for defined services, both initial and ongoing, is hard to argue with. But it looks very much as if, in its maniacal obsession with consigning commission to the dustbin of history, the FSA has failed completely to anticipate the side effects of replacing it with AC, most notably in terms of the tax implications which may very well lead to consumer detriment.

    For this reason, I have called for Customer Agreed Commission which, in conjunction with 100% clean entry and exit product terms, would surely achieve the same objectives without giving rise to the issues we’re now seeing.

    The FSA’s two main concerns appear to be:-

    1. selection bias as a result of certain providers ramping up commission rates, perhaps only temporarily, to pull in more business and

    2. Excessive commissions being all but hidden away at the foot of page 7 of an illustration that isn’t sent to the customer until a week after completion of the application form.

    Both could have been addressed in far less disruptive ways than a sledgehammer ban on commission. For example, the FSA could stipulate that:-

    1. All advisers/salespeople must provide the customer with their written recommendations, including explicit disclosure and explanation of commission, at least a week before the presentation of any application forms,

    2. All application forms must include a commission disclosure section just above where the client signs,

    3. The provider shall not set the amount of commission to be taken from the product and

    4. A copy of every application form must be supplied to the client within no more than 3 working days of it being signed.

    But, as we see time and time again, if there’s a simple, cost-effective and straightforward way to tackle an issue and a complicated, costly and inconvenient alternative, guess which one the FSA will always choose.

    And all the while, the motorway pile-ups continue unabated, with the costs of clearing up the mess dumped at the door of the IFA sector.

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