Adviser charging

The FSA is focused on ensuring product providers play no part in establishing the level of remuneration received by an adviser and had reiterated this in the their Feedback Statement in November 2008 in which they set their proposed approach to implement Remuneration Transparency.

The FSA's initial proposals around 'adviser charging' have not changed in the June Consultation Paper. The FSA see this as an opportunity for product providers to sell their products based on the quality and price of their products rather than the amount of commission they are prepared to pay to advisers.

The key points are :

• A total ban on factoring for both single and regular premiums. Advisers and clients can still arrange credit to fund advice but not from providers.
• Providers will still be able to facilitate payment to advisers through deduction of charges but these payments will have to be directly funded by matched deductions from the product at the same time as the payment is made. These requirements effectively end indemnified initial commission options.
• The FSA have confirmed the requirement for a disclosed separation of provider and advice related charges to customers to ensure they understand what charges they are paying to the provider and the adviser. These requirements would apply to both Independent and Restricted Advice.

The key elements of new adviser charging?

• A clear specific agreement must exist between a customer and their adviser on the payments and any cost implications to the customer if additional 'remuneration charges' are incurred in addition to any product charges. This would include any remuneration that the adviser will receive from all sources in return for the services provided to the customer.
• The advisor must agree with the customer the basis of their remuneration (e.g. how much, how frequently and where the money comes from to pay for their advice) although there is no obligation for the adviser to be prepared to negotiate on fee remuneration levels.
• The provider should not be involved in determining the basis and level of remuneration, either by way of a fee from the client or deduction from the product itself, which an adviser receives from the client.