OpinionSep 27 2013

Adviser dissent over long-stop highlights growing anger

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Long-stop longing

One recalcitrant IFA has been praised by readers in FTAdviser’s comment boards for standing up to the regulator by refusing to amend his client agreements, which reference a statutory long-stop under the Limitation Act 1980.

The Financial Conduct Authority has finally told Financial Escape’s Phil Castle he must remove the clause, which he has included in client contracts for five years, four years after it refused to approve agreements and thus prompted the firm to resign from a Trading Standards scheme.

Under the Financial Services and Markets Act 2000 and Consumer Credit Act 1993, complaints to the Fos are not subject to the same time-barring as court actions. The FCA has thus argued the clause is “misleading” - and it is probably technically correct.

Mr Castle has argued in a letter to the regulator - and during a fiery recorded telephone conversation - that it applies in particular instances such as unregulated tax advice or where the redress sought is above the maximum Fos threshold of £150,000.

Whether or not the FCA stands by its stance, advisers have made their feelings clear. Comments included a number stating that the lack of a long-stop for advice is “an injustice under English law”, while another referred to advisers as being treated like ‘sub-humans’.

At least advisers aren’t alone. Tenet recently added its weight behind the battle by launching an e-petition, which has received close to 4,000 signatures.

In a video interview with FTAdviser, the firm’s group regulatory director said the battle was important because the cost of being an adviser, not least increasing PI premiums due to the increasing breadth of advice under the RDR and the endless liability for advice given, “only seems to be going up”.

Many advisers have previously commented that the long-stop is “even more relevant” for network members and thus Tenet’s involvement is one of self-interest, but I suspect support for the campaign is wider than simply network and national advisers.

We need the regulator or high-ranking MPs to get behind the cause for it to really go anywhere, but they don’t seem very keen.

Charging conundrum

Adviser charging has been rarely out of the headlines since the move to the Retail Distribution Review eliminated commission and brought in explicit adviser charging. This week FTAdviser’s blog on innovation in adviser charging garnered some debate.

It referred to a model being offered by one adviser based on ‘stacked percentages’ - initial fees that take into account the overall sums an individual has invested with an adviser - and asked if this concept and other new ideas like it are the beginning of new ideas coming through.

One commentator stated that he always charges an hourly rate “irrespective of the type of investment business”. In my view, someone with an Isa is unlikely to pay £150 an hour for such advice - indeed it is precisely for this reason that many have said hourly fees simply lower-value clients.

Many advisers that I speak to admit that they sometimes do work for free for those that cannot afford it. Others have told me they charge those that cannot afford advice a smaller fee than those with larger amounts.

Is that fair? Who knows but one thing is for certain is that those advisers who do this are trying to bridge the well-known advice gap. It can only be a good thing if others find more ingenuous ways of trying to achieve this aim.

Bulk transfer battles

In other charges news, FTAdviser sister publication Investment Adviser reported this week that a rift has opened up within the platform sector on how to manage the move towards adviser charging.

Four platforms – including Cofunds, Skandia, FundsNetwork and Axa Elevate – have now stated they will keep paying trail and rebates from investments made before December 2012.

In contrast Ascentric, Novia, Alliance Trust Savings and Standard Life have all begun converting share classes in bulk with a view to moving their entire suite of funds on to clean fee share classes within the next few months.

This would have the effect of cutting off trail commission, potentially posing problems to those advisers still managing the transition to adviser charging.

Some advisers may be inclined to continue doing business with those platforms that are paying trail, whether it is in their clients’ interests or not. Others argue that a simpler, cleaner charging structure on all funds is better for clients.

Platforms on either side are playing to the gallery, but it’s not yet clear who is garnering the louder cheers.

Are Sipps and Ssas being too wary?

And finally, pension liberation.

This week providers acknowledged adviser “frustration” at the increasing number of pension transfer requests that are being refused, particularly to small self-administered pensions which many say are an increasing target of pension ‘liberation’ scammers.

Richard Mattison, director at Ssas administrator Whitehall Group, told FTAdviser he has had five transfers to what he described as “genuine” schemes blocked by five separate providers in the last two months alone.

I have been told by many Sipp providers that pension liberation schemes are becoming cleverer and are essentially cloning genuine pension schemes so they won’t be spotted. Whilst I understand the frustration, that old adage ‘better to be safe than sorry’ really comes into play here.

The real question is, where are the regulators? I feel sympathy for the providers in this situation as they are being put in a corner and, until we do more to tackle schemes as they are set up, these unintended consequences will continue.