Large independent financial adviser (IFA) businesses will have to give a complete breakdown of their marketing costs – as well as how much they pay for IT and office space – within their charges to be paid directly by clients, under new rules enforced by the City regulator.
The Financial Services Authority (FSA) said that IFAs who offer advice to clients in a retail setting must describe marketing and other costs as “adviser charges” and not financial product costs.
The plan is part of a wider overhaul of rules governing IFAs, aimed at increasing transparency for consumers, which are set to come into force from the end of this year. They have already caused uproar within the IFA community, as there have also been sweeping changes to how IFAs charge commission.
“Larger firms, who provide products as well as advise on products, to set advice charges so they are ‘reasonably representative’ of the services offered,” the FSA said. “This prohibits firms cross subsidising advice charges, with profit made from other parts of the business. These firms must ensure that their adviser charge is reasonably representative of the services associated with making the personal recommendation (and related services).
“Our concern is that firms may be taking a narrow view of what should be included within the advice cost excluding, for example, things like IT costs, marketing budgets, property charges and costs relating to business development. This will continue to be an area of focus for the remainder of the year,” it said.
