Making sure your charging tariff is fair

She says competition among firms will tend to keep charges in the same ball park for similar services and expertise.

Compliance First says advisers should calculate the minimum amount that they need to process the business and charge the client accordingly.

In determining its charging structure and adviser charges, it says a firm should have regard to its duties under the client’s ‘best interests’ rule.

Practices which may indicate that a firm is not in compliance with this duty include:

1) varying adviser charges inappropriately according to provider or, for substitute and competing retail investment products, the type of retail investment product; or

2) allowing the availability or limitations of services offered by third parties to facilitate the payment of adviser charges to influence its charging structure or adviser charges.

Compliance First says: “A firm must not use a charging structure which conceals the amount or purpose of any of its adviser charges from a retail client.”

Gill Davidson, group regulatory director of Tenet, says advisers must use an appropriate charging structure for calculating their adviser charge for each retail client. Cost of their services must be clear and easy to understand both generically and on an individual client basis.

Ms Davidson says: “Advisers must ensure that their tariff is in clear/plain language with initial and on-going services described separately.

“If the adviser charge is calculated using non-cash terms - for example, as a percentage - then examples in cash terms must be provided so clients can understand how the tariff will be applied in practice.

“It must also reflect as closely as practicable the total adviser charge to be paid and, where a ‘time cost’ basis is used, an approximate indication of the amount of hours each service is likely to require.”

Finally Ms Davidson says a firm should consider if and how their method of charging could create any conflicts of interest and put in place measures to manage these.

For example, Ms Davidson says firms expecting to invoice a large initial or one-off fee to a retail customer, where a tiered charging structure does not already provide a discount for higher value transactions, must consider whether their standard tariff should be applied.

She says this assessment could take into account whether the adviser can demonstrate that the time/cost plus reasonable expenses required to provide the advice to the customer will be fair and the extent to which a risk premium can be justified due to the specialist nature of the advice.

Ms Davidson says: “Advisers are reminded that they must consider all costs that a client is likely to pay as a result of their personal recommendation and whether this is likely to be of value to the client, in their best interests and appropriate to their needs.

“Services or products which do not address an identified client need or outcome must not be recommended.”

Ongoing charges must be justified by the delivery of an ongoing service or in respect of a regular premium policy, says Keith Richards, chief executive of the Personal Finance Society.

He says a clear outline of the ongoing services you will provide and the applicable charges must be provided to the client.

Mr Richards says: “The client should also understand that they can cancel the service should they wish to and how they can go about doing so.

“In respect of a regular premium policy, if the ongoing charges deducted from a regular payment product are to cover initial charges, and the initial charge has been paid off – the charges must stop unless replaced by a disclosed and agreed ongoing service provision.

“While not specifically their charges, advisers should also ensure that clients understand wrapper and platform costs and charges (having obviously determined their appropriateness for the specific client) as these will impact the overall investment performance and will form part of the overall service value experienced by clients.”