Bonus rules give IFAs competitive edge over wealth managers

The proposed widening of the Financial Service Authority’s (FSA) remuneration code could give IFAs a competitive edge over wealth managers who will be hit by the rules because of their Mifid status.

David Bennett, chief executive of Apcims – The Association of Private Client Investment Managers and Stockbrokers – has said broadening the code to include investment and financial advice firms could heap pressure upon smaller and non-listed wealth managers.

Under the proposals, the remuneration code would be brought in line with the Capital Requirements Directive and Financial Services Act 2010 by extending it beyond banks, building societies and brokers.

The rules put forward state that all staff that come under the code, at least 40% of a bonus must be deferred for three years or more and at least 60% must be deferred where the bonus payout is more than £500,000.  At least half of all bonuses must be made in shares, share-linked instruments or equivalent non-cash instruments of the firm.

But Apcims’ Bennett (pictured) said, if introduced, the new rules could raise issues of competitiveness between discretionary managers and IFAs, as only wealth management firms are governed by Mifid – the same set of firms captured by the proposed code.

‘[The code] captures all of our member firms because they are covered by Mifid – a total of around 2,500 firms,’ Bennett said.

‘The critical issue is going to be in how the FSA chooses to implement their interpretation of proportionality and I believe that is an area where we will have discussions about what it means in practice for Apcims’ member firms and ask for further guidance.

‘The other issue is that our smaller members will be covered by this whereas IFAs will not, as they are not covered by Mifid,' Bennett said. 'That raises issues of competitiveness.’

The Apcims head also raised concerns that smaller non-listed investment management companies would be unable to issue bonuses in shares.  'It talks about distributing shares but that is difficult to do for non-listed companies,' Bennett said.