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Phil Young: Adviser charging and that FSA letter

Phil Young MM blog

This week the regulator issued a Dear Compliance Officer letter to platforms and providers regarding the provision of adviser charging facilities.

The thrust of FSA’s letter is very clear. The regulator expects all platforms and providers to introduce processes to check whether the adviser using an adviser charge facility has disclosed all the necessary information. There are a number of ways for platforms to address this, here are the main options as I see them:

1. See all the adviser charge agreements. Skandia adopted the most conservative approach by issuing their own paperwork to advisers for completion and signature by clients which have to be sent to them to trigger Adviser Charging. This is a belt and braces approach which Skandia launched earlier in the year, well ahead of others. Adopting this approach means there is little need for any additional work thereafter.

2. Random sampling. The FSA letter makes specific reference to this as an example. I expect most platforms and providers to leave themselves the option of doing this, even if they only wish to use it in certain circumstances. It would allow a platform to request evidence that disclosure was made either by asking the adviser for it or asking the client direct.

3. Notification to the client. I suspect this will prove to be the most popular option, probably combined with some random sampling. Where adviser charging is activated, a letter is issued to the client confirming what has (and should have) happened and allowing the client to contact the platform or provider if this was against their wishes or if they have any concerns. Negative consent should be enough, rather than requiring clients to respond. This is relatively non intrusive but some advisers may be concerned that clients who already understand they are paying a fee will think something more fundamental than the mechanics of that payment has changed, and be concerned. It will require some advance communication from advisers.

I expect a combination of two and three to prevail, but whilst we wait for decisions to be made, advisers as a minimum need to ensure the client agreements they have in place are up to date. This means you disclose the fee, in pounds and pence terms where possible (it will eventually need to be disclosed in pounds and pence terms including which tax wrappers the charge comes out of once you know this), all terminology is correct, and you include a breakdown of what services you will offer for the ongoing charge if an ongoing fee is to be paid.

We have issued guidance and template agreements, to threesixty clients, which include these points and others. As changes need to be agreed and signed by clients, prior to any move to adviser charging, this puts extra pressure on advisory businesses at an already difficult time. A simple rebalance could trigger this, as it will turn off fund based commission for unwrapped collectives.

Similarly, platforms and providers face a real battle making these operational changes so late in the year, alongside their existing RDR change programme. The pressure will be more on platforms than providers as switches within products are not likely to turn off trail and require a move to adviser charging.

Of the platforms, Skandia would appear to have done everything required by adopting the approach outlined in my first point. Standard Life and possibly Axa (yet to be confirmed by them) have adopted a combination of 2 and 3. The rest will now have to make a decision as to how they will manage this issue.

Addressing this in October 2012 is concerning. My experience to date is that across the whole IFA market a significant percentage of advisers do not have appropriate agreements for adviser charging in place with their clients, and the FSA’s letter puts an obligation on platforms and providers to police this.

Given there is likely to be no consumer detriment in the majority of cases where the client continues to pay the same fee but their are some changes to the mechanics of the payment of that fee, it seems an unusually prescriptive approach, bringing the clarity which would have been welcomed six months ago, but not within weeks of the RDR deadline.

Phil Young is managing director of Threesixty


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There are 13 comments at the moment, we would love to hear your opinion too.

  1. Well I suppose we should be grateful, the FSA have excelled themselves here by clarifying this issue a whole eight weeks in advance of the deadline.

    If the people behind this organisation ran a private company, it would fold in next to no time. Complete incompetence, however well their intentions and the overall sentiment behind RDR (which as a concept I welcome) the implementation has been nothing short of shambolic.

  2. Stick to paper applications with the correct layout.

    The a wet signature can prove all that is necessary. It aint rocket science!

  3. So now we have two levels of policing – the FSA and the platform/providers?! I wish I had the bottomless pit of money that the FSA thinks our industry has to pay for all this.

  4. So yet again the FSA treats us like vermin.
    On the one hand they insist every adviser have an SPS from a registered professionl body, presenting/upgrading our professional image to the world at large, then behind the sceneprey on us like Hannibal Lector. You couldn’t make it up.
    When I meet my Clients, I give them an unvarnished update on RDR progress. They are horrified in general at the incompetence of the regulator.

  5. Everyone wants to learn how to make money online. There seems to be a few people out there who are making money online and lots of it. The rest of us just want in on the action.

  6. Brilliant, despite new qualifications,SPS, PI insurance,capital adequacy, audited recorded keeping,accounts,FOS fees,FSCS fees, FSA fees, PFS membership,offices,staff overheads, structured CPD, compliance supervision, 20 years experience and anunblemished complaints record, I still can’t be trusted! When are these idiots going to back off and allow us to go back to work?

  7. The Grey Defector 29th October 2012 at 8:22 am

    When I tell my clients about the RDR their universal exclamation is WTF!

  8. Grey and chris,

    well i guess their reaction will depend on how you frame your comments about RDR, thats ultimately up to you. (But I suspect your giving it the negative spin)

    And yes, I am one of those pesky people who believe the general thrust of RDR is needed.

  9. @Nicobobinus: The “positive spin” would run as follows: “Well Mr Bloggs, I’ve got some good news for you. For the past twenty years I’ve had absolutely no idea what I’m doing, and I’ve simply invested your money with whoever was paying the highest commission at the time. But thanks to the RDR, I’ve now had to pass some exams, and as I will be charging you whatever I feel like from now on, there can’t be any bias!”

    You’re right, I’m sure that would produce a very different reaction.

  10. I think anyone who reads these blogs is in tune with my position on RDR, commission ban, adviser charging, exams, SPS etc so I won’t duplicate what has already been said by many.

    We are however, were we are, it is what it is and nothing any of us say will alter what is about to transpire.

    The best thing we can do is operate as we normally do, look after our clients, only recommend products and services (which of course we will see a significant reduction of suitable products in the near future) that match our clients ATR and meet their needs for protection,savings, retirement planning and investment and charge them accordingly.

    It has been mandatory for years to offer clients a choice between fee based or commission basedadvice and service, soon it will only be fee based but with the aid of providers facilitating adviser charging and putting in place structures and methods of passing over remuneration to advisers for investment business, not many should suffer.

    The people who will suffer are the lower earners and consumers of modest means and limited surplus money.

    That is the way of the world.

    Being professional, is not about passing exams, although that assists us to demonstrate a certain level of knowledge and expertise, it is about acting ethically and being honest and up front with clients about what we offer, the protections it gives them if things go wrong or we get it wrong and that comes at a cost.

    The fact that the exams for level 4 do not really address the issue of how to plan a persons financial needs, perform product research, write reports and make recommendations is of no relevance, you will have to have the exam qualifications post 2012 to get your SPS regardless, if you are to continue operating a business in the finest industry in the world.

    Nowts for nowt as they say in the North.

  11. Oh no I agree with Harry Katz again. That’s twice in one week it can’t go on surely?! 🙂

    @Ned Naylor “finest industry in the world” spot on

  12. Nick

    Cheer up. I’ll buy the drinks – so you can anesthetise yourself! You again demonstrated at Platforum that there are many issues on which we agree. It makes me happy, but does it make a difference?

    Nice to debate and discuss, but in the end the world (and Financial Services) just turns with or without our input.

    I couldn’t let things pass without a note of disagreement to you and Ned. We are light years away from being the finest industry in the world. At the end of the day we are but parasites, relying on others to create the wealth on which we can advise and hopefully help to safeguard and perhaps even increase.

    The finest industries in the world are Industry itself and agriculture – creating all that exists for the rest of the world to consume, improve their lifestyle and add comfort. Let us not run away with the idea that we are so very special. Therein lies hubris.

  13. @ Harry

    In writing you will buy the drinks- yippeee!!

    Yes perhaps the best industry in the world is a bit OTT but without any doubt in my head some of the best professionals in the financial services world

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