Mifid II  

FCA to change adviser charging rules

FCA to change adviser charging rules

The Financial Conduct Authority has proposed changing its adviser charging rules because of concerns the spirit of the Retail Distribution Review is being undermined.

The regulator has proposed the changes as part of its work to transpose the Markets in Financial Instruments Directive II into UK law.

The FCA has proposed amending the RDR adviser charging rules to clarify they will apply to the wider business of providing investment advice and to confirm the only types of non-monetary benefit which may be paid and accepted in relation to advice are “minor” ones.

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At the moment the Retail Distribution Review bans firms from accepting or paying commission for all personal recommendations provided on an independent or restricted basis on retail investment products.

But in its third consultation on Mifid II, published today (29 September), the FCA said: “Thematic work following the introduction of the RDR has indicated that firms continue to use various types of payment as a means of securing distribution, which we regard as undermining the spirit of the RDR.

“While recent follow-up work has demonstrated improvements in this area, we remain concerned about the potential for advice to be biased as a result of payments made by distributors.

“In light of this, we propose clarifying in our transposition of Mifid II’s inducement ban, and by amending the existing adviser charging rules, that the inducement ban relating to both independent and restricted advice should be understood as applying to the wider business of providing advice rather than only to payments made in relation to the provision of a particular personal recommendation.”

The FCA has also proposed going further than Mifid II in the area of non-monetary benefits.

Mifid II stated that with the exception of minor non-monetary benefits, firms providing either investment advice on an independent basis and/or portfolio management are banned from accepting or retaining third party inducements.

But the FCA has proposed extending this ban to firms providing restricted advice and also banning rebating for firms providing such services to retail clients.

Mifid II also applies the inducement ban to independent advice provided to professional clients - generally large companies, corporate bodies or regulated entities - and while the FCA says it will transpose this, it will not extend it to restricted advice.

The FCA said: “We do not propose applying the rebating ban to independent advice provided to professional clients.

“Such changes would go beyond both what we currently require and we have not observed a market failure that would justify an extension of our rules to restricted advice for professional clients.

“In effect, firms will be able to accept, but not retain, payments in relation to independent advice and to receive commissions for restricted advice.”