Under the new proposals, all firms that give investment advice must set their own charges, in agreement with their clients, and will have to meet new standards regarding how they determine and operate these charges.
As revealed by Money Marketing earlier this week, a ban of factoring has also been proposed – providers will no longer be able to advance finance to advisers out of their own funds. The FSA says this will prevent provider firms from influencing adviser recommendations inappropriately through the factoring rates and terms that they may employ.
Adviser firms will be expected to decide on their own charging structures, reflecting the services that they offer, and to apply these charging structures consistently to consumers. The paper says this can be through a fixed fee, an hourly rate or a percentage of funds invested.
As for providers, the paper says it does not want the charging restructure to prevent different product prices through different distribution channels In order for the market to operate competitively, it says product prices will continue to be available through different channels, but where firms access lower prices they will have to pass these on completely to their consumers, without retaining a margin.
The RDR consultation paper is also proposing that ongoing charges should only be levied where a consumer is paying for an ongoing service, such as a regular review of the performance of their investments. The only exception for this will be when an consumer takes out an investment that they will contribute over time.
The paper says that while adviser firms may be used to receiving greater
amounts of remuneration from some product providers than others, advisers will not be able to replicate the variation in the charging structures so as to not incentivise it to recommend a particular type of product, against the interests of the consumer.
Adviser Charging will be required of all levels of advice except basic advice – so the FSA will propose to apply our Adviser Charging to all firms that give advice on investments.
The rules the paper is proposing would come into effect from the end of December 2012. The FSA says firms will not have to change their remuneration structure before then.