Weekend Digest for IFAs & Financial Planners (3rd & 4th Nov)


In this installment of Adviser Digest, we give a summary of the interesting stuff so far this week. Click on the title to read the full article(opens new window).                                                                                                                                                                                                                                                          

Adviser Changing: Mis-information Reigns

This article by Phil Young of ThreeSixty attempts to clarify what advisers need to do to comply with the regulator’s requirement on AC.  He pointed out that the question advisers need to consider is “What do we need to do to meet Adviser Charging requirements?” not solely “What does my platform require from me?

Contrary to what many might think, Young noted that Client Agreements isn’t the critical issue here, disclosure is and there is no ‘magic client agreement’ that addresses all requirements. The key requirement is that advisers need to agree in writing with clients ‘in pounds and pence terms….., how much the advice costs not just the percentage. You’ll need to confirm which tax wrappers, if any, you will be taking your fee from and how often’

It is fair to say that, there are several unanswered questions but I would suggest that advisers bear the following points in mind;

Some providers may not facilitate AC at all and those who do may not offer the facility across their entire product range. Fund managers including M&G, Henderson, Blackrock and Schroders  have already announced they will not be facilitating  AC for direct business. You can expect other fund groups and even product providers to follow. Off course, this shouldn’t be a problem for advisers who use platforms but apparently, nearly 8,000 advisers don’t!  However, choosing to work only with providers that facilitate AC may impair adviser’s independence


Providers who facilitate AC will do so on their own terms! This means that  even if adviser sort out their agreement and disclosures with client, some platforms will demand that client sign their own forms. Failure to do so may mean that adviser won’t get paid

Simply following providers’ own process on AC won’t be sufficient. Advisers need to review their own clients agreement and  disclosure process

Charging clients directly is not as easy as it sounds. Ongoing fees  based on % is a little tricky as the value of client portfolio will change from time to time.

While there is a tax advantage in using a pension wrapper for AC, only the proportion of the advice relating to the pension can be charged via that wrapper.  Putting all fees for a holistic plan (i.e. including non-pension advice) through a pension wrapper is in breach of HMRC rules

Taking AC from life bond? Beware, be very ware! This may form part of client’s 5% annual tax-deferred withdrawal


SIPP Illustration: All Change, All Change

When SIPPs were brought under the FSA regulation in 1997, they were exempted from some rules that applied to other forms of personal pensions, specifically relating to provision of Key Feature Illustrations (KFIs) and projections. 15 years and several consultation papers later, the FSA has issued new rules in paper CP12/29, which effectively removes this exemption for SIPPs.

This means, starting from 6 April 2013,

  1. SIPPs will be brought in line with other personal pension and providers will be required to provide Key Features Illustrations (KFIs), effect of charges and reduction in yield disclosures to consumers
  2. SIPP operators have to disclose any interest or commissions they receive from banks, so that consumers are left in no doubt about the profits operators keep

The FSA will also introduce new standard projection rates on pensions and life policies starting from April 2014.  Projection rates on tax advantaged products such as personal pensions will drop from 5%, 7% or 9% down to 2%, 5% or 8%.

The paper also contained proposals to introduce changes in the  way the effect of inflation is portrayed when illustrating a personal or stakeholder pension. The changes would require firms to provide standard deterministic projections that explicitly include the effect of inflation and show the potential outcome in real terms instead of nominal terms.


Smell of Trouble in Drawdownland

Following new vibes from Canary Wharf, we can expect a review of the drawdown advice soon and needless to say, the outcome isn’t going to be pretty!

This is following a ‘small thematic review’ carried out by the regulator involving 6 small adviser  firms and 53 client files, which showed that nearly 65% of drawdown advice do not clearly demonstrate suitable advice! Yes, you read that right, 65%!

As usual, the problem with these files isn’t that they were unsuitable. As a matter of fact, only 1 of the 53 files reviewed is judged unsuitable. The real problem is inadequate evidence to show that they are suitable. In most cases, this is down to poor documentation of advice process, lack of audit trail and client report poorly put together

“We have uncovered sufficient information to suggest that there are common failings that are industry wide” the regulator declared!

Given the pressure that advisers are under in the run up to the RDR, this is understandable, although not excusable  We have been supporting advisers with this areas, including making sure that their advice process are properly documented and all client reports are compliant. Please get it touch if you need help in this area.


Busted: Myth That Passive-Only IFA CANNOT Remain Independent Busted

Message coming out from the well-padded offices of Canary Wharf this week effectively busted the myth that adviser who only/mostly recommend passive portfolios may have to give up the I in IFA as they won’t meet the test of independence in the post-RDR world.

In an interview with MM, FSA technical specialist Rory Percival said it is the process advisers go through to decide what is suitable for their client which determines independence, not the type of funds they recommend.

Percival says: “It is very possible advisers can only recommend passives to their clients and remain independent.’ He says the FSA will provide clarity around this in its next RDR newsletter, due to be published later this month.

This effective confirms my view in this blog written back in Sept, which it worth a read, even if I do say so myself!


I hope you have enjoyed this and hopefully it’ll make you job a little easier! As paraplanners, that’s what we do! As usual, thought and comments are welcome.




Abraham Okusanya
Abraham is the founder of FinalytiQ, a research consultancy for platforms, asset managers, and advisory firms. Recognised as one of the country’s leading experts in retirement income, platforms and investment propositions, Abraham has authored several papers on these subjects and delivered talks to the Personal Finance Society, The FCA and several conferences across the country.

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