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Professional Adviser
  • RDR

FSA cautions vertically integrated firms on charges

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  • Rahul Odedra
  • 31 August 2012
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The Financial Services Authority (FSA) has expressed concerns that vertically integrated firms may try to skirt around its adviser charging rules set to be introduced following the Retail Distribution Review (RDR).

Under the RDR requirements, firms will be expected to set their advice charges so they are ‘reasonably representative' of the services offered.

However, with some businesses involved at both the product manufacturing and advice ends of the chain, the regulator said it is worried some may seek to subsidise advice charges with profits from elsewhere.

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This would allow some businesses to potentially offer 'cheaper' financial advice, giving them an unfair competitive advantage over smaller companies.

In its latest RDR newsletter, the FSA said: "These firms must ensure that their adviser charge is reasonably representative of the services associated with making the personal recommendation (and related services).

"Our concern is that firms may be taking a narrow view of what should be included within the advice cost, excluding, for example, things like IT costs, marketing budgets, property charges and costs relating to business development.

"This will continue to be an area of focus for the remainder of the year."

The FSA also repeated its warnings about non-commission payments, with worries that firms may be soliciting or providing payments designed to secure distribution.

It added: "We have always said that we would take any necessary action to deter firms from frustrating the intended market outcomes [of the RDR].

"We are considering ways to reinforce our requirement that firms can only be remunerated by adviser charges in relation to their new advisory business."

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