OFT warns advisers may need credit licence for RDR charging

Advisers who use a retainer structure to implement adviser charges could be required to hold a consumer credit licence, the Office of Fair Trading has confirmed to FTAdviser.

An adviser told FTAdviser his firm’s compliance department had warned that if they charge clients retainers, they will need to ensure that it does not fall under the consumer credit act as then a consumer credit license will be needed.

The Consumer Credit Act 1974 requires most businesses that lend money to consumers or offer goods or services on credit or engage in certain ancillary credit activities to be licensed by the OFT.

Trading without a licence in such cases is a criminal offence and can result in a fine and/or imprisonment.

Kevin Edwards, a chartered financial adviser at Midland Financial Solution, said: “There are all sorts of unintended consequences from the Retail Distribution Review.

“For example, if we want to charge someone a retainer and it is deemed that it is for services they have already had then effectively we are providing them credit, so advisers may be falling foul of the consumer credit act. It is barmy.

A spokesperson for OFT said that this is a “complex area” and explained that if a “significant period” passes between any work undertaken and a fee being paid advisers could fall foul of the rules. This would include advisers operating a quarterly retainer structure, the spokesperson added.

The spokesperson said it is “unlikely” that advisers will need a licence if they are paying as they go, for example using a monthly retainer.

He said: “Where they are receiving services upfront and not paying for a significant period down the line, then they could need a credit agreement.

“It is possible that if they are paying quarterly the financial adviser would need a license. The onus is on the financial adviser to check their lability in this instance.”

As it is “unlikely” that advisers who charge monthly retainers will need a credit agreement in place, this could help them service low-value clients.

Mr Edwards added: “The whole idea of monthly retainers is to help spread the cost for the client and we haven’t got to worry about applying for a consumer credit licence.”