Well, that’s been fun. The last 24 hours or so have seen a flurry of to-ing and fro-ing as a result of a Dear Compliance Officer letter from the FSA that landed on desks yesterday.It’s all to do with adviser charging and making sure platforms / providers can be really sure that clients have stuck their hands up for having adviser charges deducted and paid away to their adviser.
Broadly speaking what all this stuff boils down to is that we should all read the Conduct of Business Sourcebook (COBS) and shut up. If we opened our hymnals to COBS 6.1B.9R (1) – and which of us hasn’t – we would find that instructions to providers for the paying away and subsequent pockling of bunce need to “have been obtained and validated as being from the retail client”. That’s a little sentence, but it’s quite important.
The best summary of how providers can deal with this is in Phil Young’s blog, which I wish I’d written, but I was at the dentist instead. Whichever way you slice it, however, advisers and platforms are going to have to find a way to rub along together while proving to the satisfaction of the straightest, least hip, most oxygen-thiefy and business-preventiony risk guy that clients know and understand the adviser charges they’re paying. Where that’s not evidenced with a wet signature and sanctified with a ritual involving the moon, chamomile flowers and a goat called David, there will have to be some kind of sampling, and not the kind that DJs do.
Anyone who thinks this will go away quietly, by the way, needs to re-adjust their set. This is a key area of concern for the regulator. Having put the knife to commission, adviser charging exists really to avoid that cheque-book moment and also to take advantage of a quirk in pension tax laws. It’s no surprise that there is some residual nervousness in the well-padded corridors of Canary Wharf about whether AC becomes just the next kind of commish, with a whole bunch of clients suddenly very cross indeed when they get their statement and find that Â£xxx has been nabbed, whether it was in the menu or not.
In fact, if much of that does happen, I can see the regulator mandating positive affirmation, probably with a signature from the client, and that process being controlled by the facilitator of AC rather than the adviser.
Where this is going is that, based on the conversations I have with advisers, one of the Good Things about RDR – and there are several* – is that the provider or platform really does just become a supplier in the adviser’s eyes. The power balance shifts and the provider does what the adviser says, instead of the other way around.
But if you use adviser charging rather than fees direct to the client, the DCO letter really puts the kibosh on that. The provider will get in the way. There will be ‘whose client is it anyway’ handbag-style faceoffs. Procedures will vary according to risk appetite and interpretation. Some providers with strong sales cultures will try to make it easier to do for advisers. Corners will get cut, something will go wrong and…you know the rest.
In light of this, I can’t help but think that the advisers who have cut the cord completely with any provider involvement in remuneration might be forgiven for feeling just a wee bit smug today. Maybe the true sign of a sustainable business isn’t that it has a high degree of trail paid through providers. Maybe it’s what percentage of turnover is generated by invoices sent directly to clients. VAT issues aside – and that really does need sorted – it just feels cleaner and puts advisers in the commanding position where they are meant to be.
*Not banning cash rebates. That’s really stupid.