AIFA has released the first in a series of RDR Issues Papers which seeks to clarify the FSA's current position on commission and Consumer Agreed Remuneration (CAR).
The paper sets out the facts surrounding the FSA’s remuneration proposals for financial advisers, including the possible introduction of CAR and a potential ban on commission for Professional Financial Planners.
AIFA clarifies the FSA's definition of CAR using the following criteria:
- Products are priced by manufacturers excluding charges to cover the costs of remuneration to advisers for their services.
- Advisers and customers agree the level and pattern of remuneration, in the context of a discussion of all services being supplied (and to be supplied). This is very much like a fee discussion.
- Additional charges are then added to the product charges to reflect the agreed remuneration.
Fay Goddard, deputy director general, AIFA, says: “The RDR introduces Customer Agreed Remuneration (CAR) as an alternative to commission, aimed at removing the perceived stigma of commission and the current disinclination of consumers to paying fees.
“There has been some confusion and misunderstanding over what CAR actually is, or could be. We will be consulting members shortly to assess the appetite for CAR and whether or how it sits alongside commission.
“But most important of all is whether clients will understand and engage with the concept or simply be put off taking advice. Realistically, we do not expect clients to engage in bilateral negotiations to agree a fee. As with any other profession, the scale or rate of fees should be set by the firm, discussed and clearly disclosed at the outset.”
AIFA says key points to consider on commission and CAR in relation to the RDR are:
- The FSA is not proposing to ban commission
- Currently the proposal is to disallow commission in the 'professional' category only
- Commission on lump sum investments can constitute CAR provided it is agreed up front
- Indemnity commission on regular investments can be treated as CAR provided the amount of ‘commission’ is agreed up front
- Fee based firms using commission offset can easily adapt to CAR – in practice it means that there will not be any need to deal with any under or over payment of commission, such as rebating, product enhancement or requesting any balance of an agreed fee.
Goddard adds: “By retaining a commission option, the FSA recognises that consumers should have a choice of how to pay for services and that a wholesale ban would discourage a large number of people from seeking professional advice. But firms that offer commission-based services may not be permitted to call themselves ‘independent’.
“We want to ensure that the outcome of the Review delivers a better, and not just a different, regime that has clear benefits to consumers and delivers a robust advisory sector. We urge members to get involved and send us their views.”
A full copy of the paper is available on the AIFA website: www.aifa.net
Have Your Say
"Has the world gone even madder?
I think that Tesco, Asda etc. should all sell their goods at cost price and that shoppers should agree a service fee before they enter the store based on the amount that they wish to purchase and the length of time they will be in the store so that the store can reclaim it’s costs in providing that service and also add a profit margin.
Same principle! Let’s all play by the same rules."
Roland Millward is a mortgage broker.
Tel: 0207 034 2637
Email: [email protected]
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