The Financial Services Authority is proposing to change adviser charging rules so firms do not receive kick-backs from discretionary investment managers in exchange for recommending their services.
Under the retail distribution review (RDR), advisory firms should only be paid for the personal recommendations they provide to their clients, through the charge they have agreed with their client. They should not be remunerated by discretionary investment managers.
Although the FSA stated this intention in its March 2010 policy statement, the watchdog is now consulting on rules to make sure discretionary investment managers and advisory firms are ‘left in no doubt about the FSA’s requirements.’
The watchdog emphasised if an adviser is making personal recommendations on retail investment products to a client, the adviser cannot receive a payment from the discretionary investment manager (DIM) – for referring the client or for managing the relationship between the client and the DIM.
It added: ‘The adviser is paid solely out of the charges agreed with the client.'
It said if an adviser introduces the client to a DIM, but makes no personal recommendations at all, the adviser can receive an introductory fee or payment.
The FSA said in this case: 'No advice has been given (so the referral is not a related service and is not subject to the adviser charging rules).’
The ban on referral payments will apply to referrals of new clients only and comence on 31 December 2012.