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PFS Conference: Waters says ongoing charges can continue under certain circumstances

FSA director of retail policy and conduct risk Dan Waters has said that ongoing charges can continue under certain circumstances once the RDR is implemented at the end of 2012.

Speaking at the PFS Conference, Waters said that if advisers want to offer ongoing services and consumers believe they are worth paying for, they can
include ongoing charges in their price tariffs.

He said: “In those circumstances, and only in those circumstances, will ongoing adviser charges be paid. To be clear our regime will permit, upon
the instruction of the client, arrangements to be made to take such ongoing charges from the product.

“I realise that some firms have concerns about their legacy business, and we will try to keep our approach to this as simple as we can. Any pre-existing trail commission can continue as before; we will not require adviser firms to revisit business conducted before the deadline. On the other hand, if an existing consumer wants a new service that they have not already paid for, the new rules on adviser charging will apply.”

Waters also said he was disappointed that some firms are still complaining
about the FSA’s adviser charging proposals because they believe consumers
will not pay for advice upfront.

He said he was disappointed for two reasons, the first of which was to hear
firms making claims in relation to consumers investing lump sums – saying
that current commission mechanisms should continue because consumers might not be prepared to pay for advice up front.

The second claim he points to is in relation to regular contributions, such
as pensions and Isas that are paid monthly, with it being suggested that
consumers who do not have a lump sum to start with may be cut off from
getting advice under the new proposals.

He said: “As far as these consumer-focused strands of argument are concerned, the common thread I seem to keep returning to today is that it cannot be right to hide the cost of advice from consumers, with the intention that they neither see the cost involved nor value the services they receive. We cannot both support structures that conceal the cost of advice and complain about consumers not being prepared to pay for it. A paradigm shift is needed.”

Waters said allocating greater than a hundred per cent of a customer’s funds is not sustainable.

Waters said: “Initial allocation rates that are greater than a hundred per
cent can create the impression that there are no charges to pay, that any
money being paid to an adviser firm will somehow be offset by this
allocation ‘gift’ from the product provider. I do not see how it can help
consumers to express those charges in such a confused way.”


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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. Julian Stevens 10th July 2009 at 3:15 pm

    PFS Conference: Waters says ongoing charges can continue under certain circumstances
    For once, I agree with pretty well everything Dan Waters says. As I understand it, the FSA has said that it will permit the cost of advice to be deducted by CAR from the monies invested into a particular product. This, it sems to me, is not so different from getting the client to sign his agreement to a proposed level of commission, but with the great benefit of a clarified and simplified charging structure. This is surely better than hiding the commission amount away in small print at the foor of page 7 of an illustration with which the client is probably somewhat confused anyway. And commission will still be permitted in respect of pure protection products. For several years now, we have been moving ever more robustly towards a CAR model for Pensions & Investments and stopped taking indemnity commission on protection business in 2001. We’re not making a fortune, admittedly, but our cashflow is very stable which, in these difficult times, has been our saviour. Were we back to The Old Kent Road at the beginning of each month, without our trail and non-indem commissions, I think we might well have gone under some time ago. So it ain’t as bad as some of you may be thinking ~ the world is an ever changing place and you have to do your best to keep up. If it doesn’t kill you, then it only makes you stronger and that’s what those of us who get through all this will be at the end of it.

  2. Dan Waters’ comments
    I agree with Dan Waters.We do, sadly, still have the dinosaurs who would like their clients to think that independent advice is “FREE” and will then try to mask the commission in reams of jargon and waffle.Well there’s no such thing as a free lunch and there never has been and the more clear we can be about what service we provide and how much it costs, the better. If clients don’t see a fair price being charged for the service they are provided with they will go elsewhere and so they should.The practice of disguising commission as “costs we will incur in marketing the product” like so many banks and direct sales forces have been doing should also be shown up to be the confidence trick that it is.

  3. Post RDR Investment Sales
    The FSA have no concept of how advice works, most investments are the result of many months or even years of work with clients. To expect any client to pay for the years of time that is invested by most diligent advisers, is simply living in “cloud cuckoo land”. Example currently working on an investment for a client who sold a business following a heart attack. One and a half years on, needs to invest for income, IHT planning, future growth for income, tax planning, eight lengthy meetings later, dozens of phone calls, countless presentations, and reprints of applications we may well make a loss on the £400,000 investment . This client simply would never have paid for all the meetings and work involved. Had you priced it before hand at a fixed price, you could never afford to stay in business.
    All that I see is an employed person with a salary in the FSA applying employed logic, where it simply does not fit the real world.

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