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