FSA to ban ‘kick-backs’ from DFMs to advisers
Watchdog consults on rules to ensure that discretionary investment managers and advisory firms are left “in no doubt” about the FSA’s requirements.
The Financial Services Authority is consulting on a change to its adviser charging rules to ensure advisory firms do not receive any “kick-back payments” from discretionary investment managers in exchange for recommending their services.
Under the Retail Distribution Review’s adviser charging rules, advisory firms should only be paid for the personal recommendations and related services they provide to their clients through the charge agreed with their client. They should not be remunerated by discretionary investment managers, the regulator said.
The FSA said it made this intention clear in its March 2010 Policy Statement (PS10/6), stating: “Adviser firms should not be allowed to receive commission set by discretionary investment managers for recommending their services, just as they cannot receive commission set by product providers for recommending their products.”
The FSA is now consulting on rules to ensure that discretionary investment managers and advisory firms are “left in no doubt about the FSA’s requirements”.
If an adviser is making personal recommendations on retail investment products to a client and introduces the client to a DFM, but makes no personal recommendations at all, the adviser cannot receive a payment from the discretionary investment manager – for referring the client or for managing the relationship between the client and the discretionary investment manager.
However, the adviser can receive an introductory fee or payment, the FSA said.
The ban on referral payments will apply to referrals of new clients only from 31 December 2012 onwards.
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