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FSA probes vertically integrated firms' charging plans

by Jun Merrett on Dec 06, 2012 at 07:46

FSA probes vertically integrated firms' charging plans

The Financial Services Authority (FSA) has launched a probe into how vertically integrated firms calculate advice costs, amid concerns some practices may breach adviser charging rules.

The FSA has previously voiced its concerns that vertically integrated firms that provide both products and advice may subsidise the cost of advice with profits made in other areas of its business.

In its retail distribution review newsletter for December, the regulator said: 'We have now contacted a number of these [vertically integrated firms] to obtain detailed information about how they have approached the identification and allocation of the advice costs and how these compare with their proposed revenue and align with their proposed charging model.'

The FSA said that firms may be taking a 'narrow view' on what should be included within the advice costs and could be excluding IT costs, marketing budgets, property charges and costs for business development.

26 comments so far. Why not have your say?

Boston

Dec 06, 2012 at 08:45

Some say I'm vertically challenged

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Mad Eyes

Dec 06, 2012 at 09:05

..its commission Jim, but not as we know it!!!!!!!!

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Solomon

Dec 06, 2012 at 09:05

'We have now contacted a number of these [vertically integrated firms] to obtain detailed information..... etc"

Bizzare that we are at this stage and the FSA has only just noticed this when they have supposedly been busy agreeing and approving structures with firms

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Simon Field

Dec 06, 2012 at 09:16

"Launching a probe".....at this stage of the game? They really should launch a probe into themselves.... and go in dry. but like most Govenment Departments they wouldn't find anything....because there is nothing there.

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Hugh Jars

Dec 06, 2012 at 09:30

Vertically Integrated would include SJP for one?.

If they are doing this, ( No smoke without fire) which is no suprise, it simply proves they overcharge for their advice, - ie High front end commission, don't themselves believe they provide sufficient value for it...(otherwise why would they be trying to hide it in the detail? )

~It also calls into question the morality of Solicitors (again) who have bent the referral rules to suit themselves, continuing passing business to 'Vertically -Integrated' advisers for what reason?- other than personal gain.

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sol trader

Dec 06, 2012 at 09:32

we've been saying this for years. RDR addresses what goes on outside the factory gates but has completely ignored what happens inside the factory. Was this because RDR was the brainchild of Marketing specialists who could see an opening in vertically integrated propositions whilst single handedly ridding itself of any IFA competition?

I have just had an instance of this with my chums at Standard Life who appear to have been told by the FSA that pensions we had done on a "fee" basis are not actually on an "adivser charging basis"??? Part of this appears due to the fact that the provider must have confirmation clients who have opted for adviser fees taken from products are aware these fees might reduce the build up of tax efficient funds. Fine - but so do all the other charges, stock lending, derivative profits etc etc reduce the amount you have in your pension or ISA - so why just single out adviser charging??

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On the fence via mobile

Dec 06, 2012 at 09:45

Hugh, as far as I'm aware. SJP charges post RDR are 3 + 0.5. With 2 + 0.5 on pension transfers. This is a lot less than most ifa firms I have come across. So who is the expensive sales force now? The only reason they remunerate their advisers upfront and still maintain 100% allocation on some products is because they can afford to do this and recuperate the fee over a number of years. Fee or commission it's all the same thing and the client pays for it...

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David Curley Dip extrodinaire

Dec 06, 2012 at 09:51

Sol trader,

Standard Life are just trying to steal your clients for their d2c sales force, they are running scared that they have lost control over adviser distribution.

We stopped dealing with Standard life when they tried to force us to load all our clients onto their wrap that's not a wrap .

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Mad Eyes

Dec 06, 2012 at 10:05

.its nothing to do with whether any company can afford to pay their advisers or not! Its not allowed any more and this practice is beyond bending the law, its smashing it to bits and sticking two big fat fingers up to the regulator

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Regulatory novice

Dec 06, 2012 at 10:13

I guess what irks so many of us with these vertically integrated propositions post RDR, is that they will not disclose fully the cost of the advice.

With enough resources (capital) we could all construct a "smoke and mirrors" proposition that was similar to these. However, we would know it was somewhat unethical because of the lack of transparency and conflict with the aims and objectives of RDR.

It is surprising that there has been so much discussion in these pages of the various "rule bending" approaches taken by firms and so little action by our friends at Canary Wharf.

Maybe to be fair to the FSA, they have been waiting until the last minute to see that these are the actual post RDR propositions to be implemented?

I would be sympathetic to the view that this would be a very interesting approach to see the reaction of the compliance chaps in the three weeks coming up to Christmas as they realise the FSA are not that thick after all....

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l'ifa passeport en provenance de France

Dec 06, 2012 at 10:30

On the fence

Thats just the commision paid to the advisers!! check your facts on charges, its called a TER if that helps

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On the fence via mobile

Dec 06, 2012 at 10:32

The model sjp use is alike to the MetLife one in the states. Their fees are disclosed very clearly on any illustration. They have an a.m.c of 1.5% and the fund manager charge depending on which fund it is. The 1.5 % includes the 0.5 trail for the ongoing advice. Pretty clear to me......

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l'ifa passeport en provenance de France

Dec 06, 2012 at 10:42

On the fence

So how is a TER of plus 200bhps cheaper than so using a wrap with transparent charges of say 300bhps wrap 400bhps fund manage and the 1% the adviser might charge ? your not by anychance a SJP salesman are you ?

You stated they charge 3 + 1/2 did you mean thats what commision you get ???

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Richard Ellis

Dec 06, 2012 at 10:51

on the fence....

still not clear enough i'm afraid....

If 0.5% is trail paid to an adviser and the fund charge is on top what exactly is the other 1% from the 1.5% 'amc' actually paying for?

Sounds very much like a 1.5% ongoing advice charge to me - just spun in a different way!! No wonder 'they can afford' to pay sales commission.

Makes a farce of FSA charging principles.....watch this space

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On the fence via mobile

Dec 06, 2012 at 10:57

No I'm not. I wouldn't imagine any sjp adviser would be on here.its not about being the cheapest it's all about providing a service that the client is happy to pay for... In my opinion most ifa's should take a leaf out of their book on how to service clients and give them value for money. Simply charging a client 1% trail and sending them a newsletter each month isn't service.

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On the fence via mobile

Dec 06, 2012 at 11:09

. Like an ifa charges lets say 3% initial and 1% trail, sjp charge no initial, they simply have the 1.5% amc and then the investment manager charge on a product like the bond. Because they use their own funds they make their money that way on the 1.5%. How they then pay their advisers is irrelevant. If an ifa had enough fum paying trail then they could pay their advisers the same if they wanted. Bear the cost themselves upfront of paying the adviser and collect it back over a number of years with the ongoing advice fee.

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Hugh Jars

Dec 06, 2012 at 11:24

Aghhhh that's it,

Indemnity Commission ,

but not as we now know it Jim.....

I wonder what the early transfer values look like for a client on regular premium stuff.....

Abbey Life c 1985 no doubt

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l'ifa passeport en provenance de France

Dec 06, 2012 at 11:33

Sjp have a massive early penalty ! you really need to do your research on them , the bond example ? who's technolgy do they use ? what do you think the pru charge for this?

Dont get me wrong I love the SJP set up, but a good ifa can run rings around them in both costs and service...this is the new model

You need this info to compete with them! never lost to them yet

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On the fence via mobile

Dec 06, 2012 at 11:40

Re arrange these 3 words record, the,change.

And as for standard life, they aren't trying to steal clients. If u look after your clients enough and they value your service then they won't go anywhere and will always call u first if they receive any correspondence. If they do go elsewhere then they weren't your clients in the first place..

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l'ifa passeport en provenance de France

Dec 06, 2012 at 11:47

On the fence

Nice one ! like that Record the change ........thats RDR , the adviser now in charge ! ive recorded it !

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Richard Ellis

Dec 06, 2012 at 12:49

lots of talk about amc which is frankly irrelevant in todays market where a TER can often mean an extra 1%+ on top.

A large TER on a DIF invested over time will have a significantly larger drag on performance than an initial charge and a low TER. Would like to see how total cost is disclosed and how this is carved up for product, fund and advice costs.

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David Curley Dip extrodinaire

Dec 06, 2012 at 14:43

Setting on the fence, IMHO Standard LIfe are trying it on, since their Cash fund mess which they never offered an apology to IFAs nor did explain to clients that it was not the advisers fault that they mis- managed the fund finally having to compensate clients. Since that point their attitude to IFAs has got worse.

They now see that any way to create a split between the client and adviser will serve them well.

When clients ring Standard Life to ask a question about a direct debit that they do not want to bother me about, it has been known for the authority & agency to be switched to their direct arm without the client understanding whats going on. S L are not the only ones .

As a registered Life Planner I do offer an holistic F/P service with regular contact with my clients and I do not need an anonymous person to lecture me on how to retain clients

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l'ifa passeport en provenance de France

Dec 06, 2012 at 15:50

...cool ! A vertically challenged registered Life Planner !

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Nessa

Dec 06, 2012 at 20:06

They charge commission, its not advice its commission but more importantly their sales force ( yes sales force not advice firm) are rewarded for the amount of new business income they generate so irrespective of the TCF outcomes and advice given its all about the very bottom line for the vertically integrated and intellectually and morally challenged firms.

...so the advisers are all sharks? No, there are a lot of honest and customer focussed advisers in VI's but like any culture its driven from the top and the rotting mess has Sir Isaac Newton in the driving seat to ensure that everyone loses.

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Jimmy via mobile

Dec 06, 2012 at 21:49

Only way to get true cost is for regulators to get all involved to show their hand and disclose ter or true ongoing cost - toc.

So many providers including the transparent sjp do not seem to be able to show this on their fact sheets? Why not?

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Richard Hardy

Dec 07, 2012 at 12:24

About time the FSA got a good probing!

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