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FSA kicks off review into adviser charging

by Michelle Abrego on Feb 18, 2013 at 14:00

FSA kicks off review into adviser charging

The Financial Services Authority (FSA) has kick started the second stage of its thematic review into the implementation of the retail distribution review (RDR), sending out a questionnaire to 50 advice firms asking them about adviser charging and how they describe their services.

The FSA previously set out plans to conduct four thematic reviews in 2013 to focus on professionalism, non-advised sales, charging structures and description of advice.

Rory Percival, FSA technical specialist, said the regulator will now conduct the reviews into charging structures and description of advice together as they are heavily interlinked.

Following the questionnaire, which has been sent to a sample of 50 firms, around 20 firms will be chosen for more detailed visits, interviews and file assessments.

The file assessments will not be designed to scrutinise suitability, but if failings are apparent firms will be flagged for further investigation.

Percival (pictured) said: ‘At this stage, the first cycle which will take six months, is very much being supportive of the industry in providing these good and poor practice examples to help the industry move forward and embed the rules appropriately. The focus is on being supportive.’

‘This is very much in the new vein of acting early to prevent risks from crystallising…. We want to find out what firms are doing, provide as many poor practice examples as early as we can to help the industry apply the rules appropriately.’

However, he added that during the second and third cycles, which are also due to take six months each, the FSA will expect firms to be much more compliant with the rules.

Percival also wanted to clarify that the FSA will be checking adviser charging for its disclosure not on its value for money.

‘The focus is on disclosure. Disclosure becomes pre-eminently important when the only person who can make the judgement about value for money is the client.’

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26 comments so far. Why not have your say?

Keith Cobby

Feb 18, 2013 at 14:05

I wonder if SJP and Towry are in the sample!

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John Phillips

Feb 18, 2013 at 14:10

This is were they say we are charging too much.

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Feb 18, 2013 at 14:15

Love it that the assumption after 6 weeks is that there will be "poor practice"!

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Man of Kent

Feb 18, 2013 at 14:28

@ Roydo - surely it would be optimistic to expect none? Rory Percival does say the FSA will be looking for examples of good and bad practice. The key to the success of a review will be for them to publish all the examples before stages 2 and 3 of the review are under way.

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Lee Tomkins

Feb 18, 2013 at 14:31

II think the biggest issue will revolve around what fee income is regulated or unregulated. Now commission is banned and we are fee charging the line is not quite so distinct any more!

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Man in Black

Feb 18, 2013 at 14:39

Well, let's all keep an open-mind at this stage.

[And I just said that without laughing]

I have no doubt that Rory himself is sincere in the positive and supportive comments he is making.

The problem however will arise from the fact that it won't be Rory turning up on everyone's doorstep - more the FSA Third XI we call 'Small Firms Division'.

That's when we get the little **** who was bullied at school and thinks his years sitting behind a counter at Barclays qualifies him to make judgement calls along the lines of "Principle 12 says a firm has to organise its affairs idiosyncratically. Therefore...[que logical leap disguising arbitrary interpretation].... your firm (or your next door neighbour who's details I've left in your letter) is in breach as you didn't consider the fact that the client was wearing a hat when he signed your Terms of Business. Blah blah...Treating Customers Like Children...send them all a cheque et cetera et cetera..."

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Feb 18, 2013 at 14:58

@Man of Kent. You are correct; I read it on my phone, and missed the bit about "good!"

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Feb 18, 2013 at 14:59

@Man of Kent. You are correct; I read it on my phone, and missed the bit about "good!"

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James Barr

Feb 18, 2013 at 15:00

what fun when plonkers run wild

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Jonathan Kirby

Feb 18, 2013 at 15:29

And will the questionnaire ask if it is TCF for people to be charged twice?

If commission is removed from a legacy product but not put back into the plan that is surely wrong.

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Bryan I

Feb 18, 2013 at 15:38

No change for the majority - still flogging products.

Commission dressed in a different name then claiming to be in the clients interests and that clients will not pay time charged fees.

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John Smyth 3

Feb 18, 2013 at 15:56

@ Jonathan Kirby

A more interesting excercise would be for them to investigate where the commissions not to be paid in the future will go. As was found last year when to Standard Life's embarrasment they were forced to admit they were pocketing it. It was not going into reduced premiums, charges or increased allocations. It was going onto their bottom line.

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Sam Caunt

Feb 18, 2013 at 16:00

If providers are pocketing commission then you look to move it or justify it where it is.

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John Phillips

Feb 18, 2013 at 16:23

@ Bryan I

What exactly is your point? do you not transact the advice you give or do you simple tell clients what they should be doing then charge them a fee? If your fees are hourly rates what ££'s per hour do you charge, if fixed fee; what do you charge for advising a client it is in their best interests to put the maximum into an ISA each year?

I would guess you won’t be paid much unless you expand your advice to actual products / funds etc and then; do you tell the client which is the cheapest method of transacting your recommendations or do you do this for them also?

If you give advice and get paid to transact said advice you and I are the same. I used to call it commission as it came from the provider, did that mean I chose the one who paid the most? NO.

I now call it an adviser fee, which covers the advise and administration required to render and action the advice. What has changed? For me nothing, as I have been charging 3% + 0.5% for the last 5 years. At least I could discount and rebate commissions, now I spend my days checking which firms have totally transparent and unbundled charges, so that my clients get the funds they require as cheaply as possible. I’m moving clients from bundled to unbundled structures, at no cost, and looking into the merits of collectives verses bonds for those clients who are happy to deal with CGT issues and understand the benefits. If I worked in a totally HNW market, I’d probably been charging fees but there is a huge sway of the UK population who will not value advice alone and then transact the business themselves. Most, even HNW clients, want end to end advice and those with sufficient money to invest can afford to pay a fee that is acceptable to both them and the adviser, who needs to make a profit at the end of the day.

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John Phillips

Feb 18, 2013 at 16:28

@Sam Caunt

Didn't I read that the FSA said this is where the providers will recoup the cost of RDR implementation?

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Bryan I

Feb 18, 2013 at 16:46

@John Phillips

My point John is that to really give advice that is client centric cannot involve 3rd parties to pay the adviser. Fees/commissions from investments like the 3% + 0.5% is adviser focused. Fees are based upon the time spent not on what products are being sold. Clients pay this and importantly value this.

I charge hourly fees (£225 for me down to £85 for my support) Should the solution for the client require it to be managed then I charge a fee to set it up but that is only after the clients has paid independently for the planning.

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Feb 18, 2013 at 17:04

@ John Phillips

I would say anyone who doesn't know the difference between 'where' and 'were' is probably charging too much.

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Smudger 2

Feb 18, 2013 at 17:17

I would agree that where they're charging more than we're charging, for their

proposition then maybe there is a case to answer.

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John Phillips

Feb 18, 2013 at 17:51

@Trade Face

We charge extra for H, but well spotted you. Perhaps you can help me with my English home work?

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John Phillips

Feb 18, 2013 at 17:55

@ Bryan I

Thank you for coming back to me with your reply. It takes me around 3 hours to put a simple Isa case together, with the help of my administrator, and email a compliant file to the back office for checking; therefore at a rate of £225.00 per hour I would need to bill the client £675.00 plus vat, which adds a further £135.00 to their total cost for the investment. £810.00 as opposed to £338.40. I’ve include face to face time of 45 mins, which is nowhere near the norm, in the 3 hours of billing time but haven’t included any travelling time.

@Trade Face

Please check and mark accordingly. Sit oops dropped another H

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Alan Lazenby via mobile

Feb 18, 2013 at 18:05

Had a meeting with a client today. They have a complicated financial situation and it took over two hours to get the bones of it, the flesh will take much much longer. They were relieved that I didn't charge by the hour and used a sliding scale of charges based on how much they invested, the more invested the cheaper overall. Research has shown that only 17% of clients were happy to pay fees, while 35 & 37% would prefer % or a flat rate. This is because they like to know at the outset what it will cost. My clients said they liked knowing that they could take their time without looking at the clock.

Everyone charges the way they feel suits their business and if the clients see value and simplicity the everyone's happy.

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Bryan I

Feb 19, 2013 at 08:54

@Alan Lazenby

A complicated financial situation that will only be simplified by you selling an investment solution in order to be remunerated - this is what is wrong.

How comfortable are the clients knowing that your only way to be paid is by selling them a product. What if debt repayment was appropriate, National Savings or an ETF.

This is not directly at you Alan as the bulk of advisers work this way. RDR has come in and advisers are still doing what they always did - take their fees from 3rd parties rather than the client.

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Julian Stevens

Feb 19, 2013 at 10:02

It may be an admission of ignorance, but I don't really understand what the issue is here. In our Client Agreement and KeyFacts About Our Costs & Services doc's we spell out as plainly as possible our charges and how they work. No charge for the initial FactFinding meeting, a nominal fee for our pre-sale/implementation work and a table of sample Adviser Fees for implementation, the latter almost always provider facilitated.

Clients know they can, if they want, call a halt to the process at the end of the initial meeting without being billed (which hasn't happened now for quite some time).

They know I won't start work on researching, formulating and documenting my recommendations unless they write me a cheque, and the costs of implementating my recommendations are spelt out clearly in the letter of recommendation.

I also say that if they aren't satisfied with the content/clarity/appropriateness of my letter of recommendation, the fee for its preparation is refundable. So far, none has asked for a refund.

Occasionally, getting everything together takes more or less time and trouble than anticipated (budgeted for) so the fee they've paid doesn't exactly match the amount of work involved but, in the real world (an apparently alien concept to many people at the FSA), you simply can't muck about asking for £50 more or refunding £50. You take that into account in setting your implementation charge.

Does it really need to be any more complicated than that? Has the FSA considered (does it ever consider) the Benefit:Cost ratio of an exercise such as this? Aren't there many much more important issues on which the FSA could and should be focussing its attention to ensure that customers are getting a fair deal that they understand? I suggest the answer to the first two of these questions is No and the answer to the third is almost certainly Yes.

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The Facilitator

Feb 20, 2013 at 09:03

@ Man in Black

I actually just spat my coffee out laughing. Thank you for starting my day with a good chuckle!

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alan from perth

Feb 20, 2013 at 17:25

Mr Stevens

Your comments seem totally sensible in that the charging structure should be clearly laid out in Client Agreemnent/ Service Proposition so I dont really know what the fuss is about and if the client is not willing to pay for services that you agree to walk. Is the FSA saying that some firms are still not making this clear ie

back to the old days of 6% upfront and no service thereafter

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Julian Stevens

Feb 20, 2013 at 17:41

I dunno ~ maybe just another of the FSA's Reds under the bed, by golly we'd better throw a few million quid at investigating this.

Maybe some Client Agreements & KeyFacts About... doc's are defective, though one wonders why that should be if the guidance issued by the FSA is clear and unambiguous. Errrrrr.......

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