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Referrals to portfolio firms escape adviser charging rules

Advisers referring clients to a firm for portfolio management can take a cut of the management fee without disclosing the earnings to clients under adviser-charging, says Apcims.

In its response to the the FSA’s retail distribution review plans, the Association of Private Client Managers and Stockbrokers says that the adviser-charging proposals do not apply to non-retail investment product business.

It says where an IFA introduces a client to an Apcims’ firm for portfolio management purposes and receives a share of the management fee or an ongoing fee equivalent to a percentage of portfolio value, it does not have to be disclosed to the client.

Apcims says: “In this scenario, because the introduction or fee-sharing arrangement relates to an investment service which falls outside the RIP definition, the Apcims’ firm would not be acting in the capacity of a product provider and would not be bound by the draft Cobs disclosure obligations.

“An IFA would not be obliged to agree its charging structure with the underlying client up front and to disclose details of income received.”

An FSA spokesman says the regulator “understands the point” and will review and consider it along with all other responses to the consultation paper.

Apcims says the requirement for stockbrokers, as well as advisers, to pass a QCF level four qualification will force them to learn about areas such as pensions and life cover that are “totally irrelevant to their role”.

It adds that the FSA’s proposal to extend the definition of independent to include all retail investment products will disadvantage stockbrokers.
Stockbroking firms that do not have financial planning capability will, under the current plans, will have to market themselves as restricted firms.

Apcims chief executive David Bennett says: “Independence should be about firms providing advice which is driven solely by consideration of their clients’ best interests and which is not influenced or controlled by the business needs of product providers.”


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There are 7 comments at the moment, we would love to hear your opinion too.

  1. You must be joking 30th October 2009 at 9:39 am

    This is just another example of the FSA’s consistent

    “We’ve thought of everything apart from what we haven’t thought of”

    approach to regulation!

    RDR is ill thought out, based on non-existent problems and will serve only to disadvantage “Joe public”.

    10/10 for effort
    0/10 for understanding

  2. Once again there seems to be some confusion over FSA rules, morals and the law.
    Surely if you are acting as agent of the client (IFA) you have a legal obligation NOT to make an undisclosed profit? i.e. whetgher the FSA rules say you have to disclose or not, you’d be an idiot NOT to disclose anything you earn as a result of a referral….
    As to the stockbrokers not needing a level four qualification, but IFAs needing one, what a laugh!!! Their argument for NOT having a level four qualification is exactly the same most IFAs are having i.e. it is not the level four which is being disputed it is the relevance of any of the exams to the job many of us actually do!

  3. Yet again the most expensive regulator in the world cannot get anything right!
    Which planet do the senior managment come from…. Oh silly me they are mostly bankers accountants and lawyers.
    I had a really good Morning so far having spoken to a little old lady client on the phone 5 times visited her once 1/2 hour drive, Completed the paperwork for an ISA (at her request) as personally I think an ISA stinks as the dividend is not tax free, I earned all of £33.00
    This is the sort of Client we will no longer be able to afford to look after come RDR.


  5. I suspect APCIMS may be guilty of a serious strategic blunder here. If they are convinced that the rules as proposed do not apply to them perhaps their members would have been better served by their staying silent until after the new rules had been published. As it is whilst they might be right in the detail, which the FSA seem to be acknowledging, they are clearly against the spirit of RDR so it hard to see that the FSA will not introduce a catch all to preclude this and any other situation they have not thought about.

    Ironically I increasingly think the FSA could stand back from most of RDR and say the debate as a result of their actions has caused IFA firms to look far more clearly at their operating models and as a result are moving towards a fair approach to consumers. If they now proceeded with only the increased examination requirements the market will probably evolve anyway without the heavy hand of regulation. It is never going to happen though.

  6. The RDR is seen as an ‘opportunity’ by so many interested parties, apart from consumers that is.

    Is this what the policymakers wanted?

  7. The Mystery Shopper for IFAs 30th October 2009 at 4:51 pm

    RDR has been hatched out in secrecy. Reasons are that is it were out in the open for a proper dabate we could all see how incompetent the FSA employees and senior management are. So keep it all under wraps boys ad girls until YOU WILL HAVE TO DISCLOSE YOUR MESSY WORK TO YOUR PERIL.

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