All advisers will be required to issue clients with a copy of "A guide to the costs of our services" as well as an Initial Disclosure Document and terms of business when they advise any private client, except when advising on GPPs, says the latest FSA consultation paper on depolarisation.
Details of Consultation Paper 04/3 Reforming Polarisation: A menu for being open with consumers states the FSA expects all private clients to be given a document when they first seek advice on packaged products.
The document explains what different levels of advisers will be paid if they are remunerated through fees, as well detailing the average market cost of that advice if paid by commission and the maximum potential cost of commission for each type of product.
"By arming consumers with this information, we hope that they will have a better understanding that advice costs can vary between forms and be better equipped to shop around," says the FSA in CP 04/03.
That said, the FSA says advisers would not have to issue a menu when offering workplace-based advice on group personal pensions to employees, if the arrangement is already set up by the employer as the term 'independent' is no longer applicable once employees are being offered limited advice.
This is because group personal pensions are not included as a category of the FSA’s product groups and because the adviser is unlikely to be able to advise on any other product except that linked to the GPP, says the FSA.
Stockbrokers will also be exempt from the requirement to present a menu document, says the FSA, providing the firm is being paid through fees for whole-of-market advice on packaged products (which is not its main line of business) when it sits alongside advice on securities and they have a "non-discretionary investment agreement" with the client.
The FSA points out it has not included a market average for fees because some companies charge hourly rates, while other firms charge a flat fee, a percentage of portfolio value or some other fee-based charging structure.
Examples offered by the FSA show advisers will be able to set their own commission levels, but menu documents at least follow a standard format in order to allow consumers to compare "prices" between different adviser firms.
Each menu will have to carry 'Key Facts' branding and will have five sections about:
- The FSA (a regulatory message, explaining the FSA regulates the IFA firm and requires the advisers to give the consumer this document);
- Details of the IFA’s services (what the firm offers);
- Payment options (whether either fee, commission or both, thru a tick box document)
- How much services might cost (depending on whether paid by fee or commission, type of advice given and products selected)
- Final information details the FSA’s website address and helpline telephone number.
Firms will only be required to issue the menu once, providing the information is still valid, and would not be required to issue a menu document if the adviser is providing "advice only on non-mass market products that are not in one of our specified product groups and they are charging for their services on a commission-paid basis only".
Telephone-based advice will be subject to different requirements, and advisers will have to send out the documents after the conversation, providing the customer has given explicit consent over the phone to complete the contract and defer receipt of the documents, and the adviser has given the verbal disclosure currently required under Conduct of Business Rule 4.3.16.
Specialist firms which offer advice on non-menu products will not be expected to present the menu document because the FSA is unable to produce the market data on these products, however, advisers will be expected to explain their remuneration.
Key questions the FSA would like responses to include:
- Q1: Do you agree with our proposal for firms to give an indication of the cost of advice early on in the advice/sales process?
- Q2: Do you think that our proposals for enhanced disclosure by way of the menu will add to the time taken to go through the advice/sales process? If so, we would be pleased to receive any data that would help quantify any extra time needed.
- Q3: Do you agree with our proposals concerning the circumstances in which a menu must, or need not, be provided?
Consultation will close on June 1 2004, and a policy statement giving feedback on the consultation as well as the final rules will then be published in the second half of this year.
All rules for depolarisation and menu will then be implemented at the same time, to give advisers a transitional period of six months, says the FSA.IFAonline
Exit fees and conversions
Initial FOC of 0.6%
Former PFS president
Last commission convened in 2002