Financial Conduct Authority  

FCA clarifies adviser charging rules

FCA clarifies adviser charging rules

The Financial Conduct Authority has clarified its rules on adviser charges for lump sum investments.

In the Financial Advice Market Review it was recommended that the FCA take steps to make sure advisers were aware of the existing flexibility of the rules.

Some in the advice industry responded to the FAMR to say the rules put in place because of the Retail Distribution Review had removed some flexibility in the way advisers can charge retail clients for advice on lump sum investments. 

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But the FAMR concluded that advisers are not using flexibility which already exists to offer more convenient payment options to consumers.

To address this, the FCA today (15 December) published information on how consumers can pay for lump sum investments in a flexible way.

The rules require initial adviser charges for a lump sum investment to be paid upfront either as a separate amount paid direct to the adviser or by deduction from the investment amount.

But they also provide certain limited circumstances in which an adviser charge may be structured to be payable over a period of time.

These are broadly where the charge is for an ongoing service for providing personal recommendations or related services, and where the charge relates to the initial advice for a regular payment product.

The FCA stated: “Where these limited exceptions do not apply, firms are permitted to offer a client credit to pay for an adviser charge, provided this ‘would be in the best interests’ of the retail client.

“Guidance says the firm should consider whether the personal recommendation or other related services is likely to be of value to the retail client taking into account the total charges the client is likely to be required to pay.”

But the FCA warned allowing a retail client to pay by instalments, instead of paying in full at the time of the advice, is likely to amount to providing credit.

An exemption exists for payments of no more than 12 instalments within 12 months where the credit agreement involves no charges or interest.

But deductions not meeting these rules would require the adviser to hold permissions to enter into a regulated credit agreement as a lender.

damian.fantato@ft.com