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Product fees can be paid before or after investment

The FSA has published final adviser-charging rules, confirming that if adviser charges are paid through a product, providers can deduct the charge before or after the client invests.

In November, the regulator published an RDR consultation paper on adviser-charging. The proposals have not changed and have now been passed into rules, set out in the FSA’s policy statement, published last week.

It states providers can either pay the full amount received from a client into a product and then deduct the charge or de-duct the adviser charge from the amount received and pay the remainder into the product.

For product sales data, providers must report the amount paid into a product, irrespective of whether adviser charges have been deducted.

These rules apply to vertically integrated firms as well as those facilitating payment for a third-party advice firm.

Where a client cancels a product after the adviser charge has been paid, the FSA says refunds from the provider can be net or gross of the adviser charge. It is up to providers and advisers to agree a procedure, as long as it is made clear to customers in advance of any sales.

The FSA says where a customer is not required to pay an adviser charge if they do not purchase a product, the refund can be made net and the customer would then need to contact the adviser for a refund.

If the charge has not yet been paid to the adviser, the refund could be made either gross or net, subject to any HM Revenue & Customs or Department for Work and Pensions rules.

Where a consultancy charge is facilitated through a group personal pension that is an auto-enrolment scheme, DWP rules apply instead of FSA cancellation rules.

DWP rules require refunds to be paid gross and if a consultancy charge has already been paid to the adviser, the provider would need to seek a refund of the charges from the adviser.

If an adviser charge for individual advice to a member of a GPP is being facilitated through the product, the refund to the customer on cancellation would also need to be paid gross. The provider would need to seek a refund of any charges already paid from the adviser, who would then need to contact the customer regarding payment of any outstanding adviser charge.

Yellowtail Financial Planning managing director Dennis Hall says: “This looks like commission by another name. The FSA could just have tightened up the rules on commission and we could have avoided this whole process.”

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