Now that you have all read the FSA's latest RDR paper in full (naturally), IFAonline welcomes you to its ever-so-slightly leftfield guide to last week's developments...
Most expected: The proposed ban on factoring was criticised by respondents who felt it would reduce consumer access to advice. But the FSA went ahead and banned it anyway.
Least expected: The FSA is accused of pandering to the banks, but it chose to keep the term 'restricted' for tied advice despite opposition from the British Bankers' Association.
Bits you may have missed:
- VAT issue is still up in the air
- Firms will be told to "consider" their charging approach in the event of a client cancelling a product during its cooling-off period.
- An adviser firm should face no financial incentive to recommend a DIF over another collective investment scheme or any other potentially suitable product.
- The FSA will check for firms avoiding its rules on legacy business (adviser charging only applies post 2012) in a bid to continue to receive commission on what the FSA says is "in reality, new business".
- Where trail commission is switched to a new adviser, the FSA expects it to be paid to the client "given that the new adviser did not pay for the service for which the commission was payable".
FSA versus English Language (cont...)
Readers may remember IFAonline's tongue-in-cheek swipe at the FSA over its flagrant use of the English language in its consultation papers. Well, last week's Policy Statement continued the trend. Here is one of our favourites...
"If a firm recommends a portfolio that requires further attention (for example, a portfolio of funds rather than a self-rebalancing fund of funds), and offers to rebalance the portfolio as an ongoing service, the firm should explain to the client both the benefits of this service and the implications, including cost implications, of not accepting this ongoing service."
Could've just said: Advisers charging for an ongoing service should explain all ramifications to clients.
If the RDR were a football match
The FSA are still 2-1 up with 15 to go. An expected policy paper in Q3 on professionalism could represent a last-minute corner for the IFA industry, but most are convinced the ref will blow up while the ball's in the air. Oh, and the FSA keeps moving the bloomin' goalposts.
Idea of the week (thanks go to IFAonline reader David McMeekin)
"Instead of all the pointless surveys and opinion polls, how about the FSA finds a few volunteers to give up their secure job and salary and set up a small IFA practice in a rural town. They would start from scratch - with no client bank of HNWs and all the bills and overheads of the normal IFA business. After one year, they shall report back on how many new clients they have using adviser charging. This will provide a definitive answer as to whether the RDR can work as opposed to endless argument and speculation."
Now for the boring bit (sorry)...
Adviser charging - the key rules
- Advisers should be paid by charges set out up-front and agreed with their clients, rather than by commissions set by product providers.
- Charges should reflect the services being provided to the client, not the particular product provider, or product, being recommended.
- Charges should not vary "inappropriately" according to the product provider, or the product, a firm recommends.
- Firms must communicate both their overall charging structures, at the outset, and the specific amounts an individual is charged.
- Firms must provide their clients with the total adviser charge payable in cash terms as soon as this is practicable and make a record of the total charge.
- The FSA is not seeking to prescribe the basis on which a firm might charge for its services - a firm, therefore, might charge a fixed fee, hourly rate, a percentage of funds invested or a mix.
- Ongoing adviser 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 exception will be where a client buys an investment to which they will contribute over time.
- There will be a ban on receiving commission and rebating it to the consumer. The FSA says it does not believe the potential for product or provider bias "can be properly dealt with" while providers continue to set commissions receivable by adviser firms.
- The rules come into force on 1 January 2013 but firms can adopt adviser charging at any time, although permission to renegotiate commission on past business is unlikely.
- Firms do not have to revisit business conducted before the deadline and can continue to receive trail on products sold beforehand.
A reader's FSA parody (A new twist on a fairly new classic)
"A man was taking a trip in a hot air balloon.
Realising he was lost, he spotted a woman below and reduced altitude. He descended further and shouted to the lady: "Excuse me, can you help me? I promised a friend I would meet him an hour ago, but I don't know where I am."
The woman replied: "Well, you're in a hot air balloon, hovering approximately 30ft above the ground. You are between latitude 40 and 41 degrees north and between longitude 59 and 60 degrees west."
The balloonist took this in for a moment, then said: "You must be an IFA."
"Actually I am," replied the woman, "But how did you know?"
"Well", answered the balloonist, "everything you have told me is technically correct but I have no idea what to make of your information and the fact remains I'm still lost. Frankly, you haven't been much help at all. If anything, you've delayed my trip."
The woman below responded: "Well, you must be at the FSA."
"I am," replied the balloonist, "But how did you know?"
"Well," said the woman, "you don't know where you are or where you're going. You have risen to where you are due to a large quantity of hot air. You made promises which you've no idea how to keep, and you expect the people beneath you to solve your problems. The fact is you are in exactly the same position you were in before we met, but now, somehow, it's my fault."
For those of who have yet to read the FSA's final rules on adviser charging, the paper can be accessed HERE.
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