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Percentage charging ban ‘not on FCA’s agenda’

The FCA is not looking to ban adviser charging based on a percentage of assets, says Apfa director general Chris Hannant.

Speaking at a panel debate on trail commission last week, Hannant said charging based on a percentage of assets invested is “fundamental” to the way advisers run their businesses.

He said: “The FCA has been categorically clear that it is not looking at doing away with this. I have it on good authority that this is not happening in the next two to three years.”

Speaking to Money Marketing after the event, Hannant said: “I am pretty confident from my conversations with the regulator this is not an active concern they are about to investigate or come up with proposals for.

“I am not saying that it will be banned after two to three years, I was trying to make it clear to the audience that this is not on the FCA’s agenda at the moment.

“The FCA is conscious of the impact the RDR has had on the advice sector, and of the impact that further changes would have.”

FCA chief executive Martin Wheatley said in July there is “dealing bias” where firms only get paid when products are sold, and cited charging on a percentage of assets invested as an example of his concerns.

The FCA board has previously raised concerns that firms using contingent charging models had an “increased risk of churn given the need to sell products to generate income.”

Hannant says: “The FCA has said it would be concerned if there was bias or a risk of consumer detriment.

“Part of the confusion comes from the fact that regulators do not use categorical language, because they would always have to act if there was a risk of consumer detriment, so they cannot rule anything out.”

A spokesman for the FCA says: “We stated in our post-RDR thematic review that when disclosing fees, cash charging is preferable to percentage charging, simply because it is easier for consumers to understand. This is something we will look at again in our subsequent post-RDR thematic reviews.”

Highclere Financial Services partner Alan Lakey says: “The FCA would be stupid to ban percentage charging because the advice sector has gone through some momentous changes and needs a period of stability to let those changes properly bed in.”

Page Russell director Tim Page says: “There is a fear among advisers the FCA will use the sledge hammer of banning all percentage charging to crack the nut of concerns about dealing bias. So it is very welcome to hear this is not on the FCA’s agenda – it is a big enough step to move from commission to adviser charging, let alone to impose fixed fees only a year or two later.”

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Comments

There are 6 comments at the moment, we would love to hear your opinion too.

  1. To be fair how can they ban it ? it does not go against the principle’s of their RDR

    Could it be they are just throwing you a fake bone again Chris ? to dodge more pressing issues, like the 15k wasted on a jolly, 118 million over charged to fee block 13A and the, 77k paid to “outside” consultancies’ to look into the consumer credit licences ?

  2. Costs to the consumer have already gone up if percentage charging was banned costs would rise even more and more consumers would be unable to get advice

  3. Christopher Petrie 16th January 2014 at 10:52 am

    The FCA couldn’t ban it if they wanted to. The European Parliament has just voted through updated rules on Adviser Charging…and it includes a % based option as a lawful fee process.

    Europe over-rides the FCA. The FCA is increasingly a local branch of the EU, monitoring EU laws. As I say, they couldn’t stop % based charges even if they wished to.

  4. They could, and perhaps may, ban payment of trail from products. i.e make a fee really a fee and not just commission by another name. To many are still selling products in order to get their “fee”
    ( commission by another name). Being paid a % suggests selling rather than advising.

    The Regulatory game requires that things constantly change – so don’t be surprised if the next move is towards real fee paying ( always the long term objective) and that % charging comes under attack

  5. @ Bones 11.47. “Being paid a % suggests selling rather than advising……”. So what? I would love to know what %age of the so called “truly fee based” advisers spend their time charging clients fees which end up in recommending the client takes no action. It cannot be very much as clients will not consistently pay for advice which says do nothing at thsi satge Mr Client. Sooner or later the client will start to wonder why they are paying the adviser to keep telling them to do nothing.
    That then leads me to believe that the majority (if not vast majority) of the time the “fee based adviser” will end up with recommendations to take action and implement “something” (whatever that maybe – oh yeah that would be a product which means that the adviser has actually sold something. All these holier than thou air-heads really p*ss me off. We are all sales people and we earn a living selling things to people. I for one am proud of that and truly believe we should all be proud of it. There is nothing wrong with being a sales person. There cannot be anything wrong with it because next to prostitution it is the oldest profession on the planet.

  6. @ Marty – Agree completely – nothing wrong with being a Sales Person. I have always sold product on a % basis but never referred to myself as Independent nor as an Adviser. My objection is about those who sell but are afraid to admit it. The vast majority do sell rather than advise and if they would admit it then fine. Taking a % from a fund requires that a product be sold, that the decision to sell is made before any advice is given. Advice dependent on a product is a sale and not advice at all.

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