Clarity on charging structures

With FSA (now FCA) re-launching its RDR consumer awareness campaign now is the time to ensure that you are communicating with your customers to raise awareness about RDR and its impact on them.

Ask yourself:

  • Are you clear about your charging structure and ongoing service proposition?
  • Does it provide a clear indication of the services involved, the costs to the client and the added value you will be providing to them?
  • Are you satisfied that your advisers know how to explain this clearly to clients?

From 1 January 2013, retail investment advisers advising on new investment business will have to operate on an ‘adviser charging’ (or ‘consultancy charging’ for group pensions) basis; although legacy commission will be able to continue for existing products in certain circumstances.

In practice this means that retail investment advisers:

  • must set their own charges for their services, since they will no longer be able to receive commission of any type from product providers;
  • should have charging structures in place, based on the service(s) they provide, rather than the particular provider or product they recommend (regardless of how these charges are to be paid);
  • must disclose those charges to consumers up front, using some form of price list or tariff (confirming the specific amount to be paid later on);
  • will only be able to levy ongoing charges where an ongoing service has been agreed with the client (except for charges for advice on regular contribution products); and
  • will have to give the client the ability to subsequently opt out of receiving ongoing services.

In order to meet these requirements, all firms should be have started to assess their business models and make provision for any changes which are required. As a business owner are you in a position to confirm:

  • You have taken a practical approach to working out what charging structure you will apply, that this clearly explains to the customer the services they will receive and the costs associated with these services?
  • You know what business overheads and expenses you need to cover and, of course, how to measure the profitability of your business
  • You segmented your client bank and considered what services you will offer to clients and what services your clients will value

Need support? Call 0845 300 5326 and talk to our experienced Compliance Support Unit today.