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PFS warns IFAs failing to offer option for fees

IFAs are neglecting the obligation to provide customers with a fee option under the menu and could face a fine from the FSA, PFS public affairs director John Ellis warns.

After June 1, firms wanting to promote themselves as independent advisers will have to provide clients with a fee option, or will be in breach of the FSA rules.

But Ellis says many IFAs have focused on calculating commission for the menu system and have overlooked the need to provide a fee option for clients.

To provide a fee option, IFAs need to set their hourly rates for different types of advice and have a system to log how many hours they spend on each case. Without this, challenges from clients on charges could prove difficult to defend says Ellis.

Ellis says: “Sooner or later this could become a big problem. Only 10 per cent of business done through IFAs at the moment is done on a fee basis. How many IFAs will be out there calling themselves IFAs but not offering a fee option?

“There is a danger that a customer will make a compliant about their charge. IFAs need a system to justify their fees to the Financial Ombuds-man Service. This is not that difficult to do but lots of IFAs do not have a system yet.”

Innes Reid senior advisor Mark Reidford says: “We offer fees and use a fairly simple spreadsheet system. For us, the problem is working out maximum commission figures for the menu.”

FSA spokeswoman Van-essa Wood says the regulator is monitoring the situation but says it has not decided on its course of action against firms in breach of the rules.

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