Investment Adviser Charging And Remuneration

Question 1

What are some of the main concepts around investment adviser charging and remuneration?

Answer 1

1. From 1st Jan 2013 - firm making a personal recommendation to a retail client in the UK to invest in retail investment products can no longer earn commission set by the product provider.
2. The firm is instead paid an adviser charge agreed with the client in advance.
3. This rule does not apply to basic advice - simplified investment recommendation processes often used for straightforward financial products like stakeholder pensions.
4. For non-advised services or execution-only sales (where no financial advice or recommendation is given), the adviser charging rules do not apply. I.e. clients don’t pay for this (no adviser fee)
5. The firm’s charging structure must be disclosed to the client in writing well before any advice or related services are given. This should be in clear and plain language. (Services & disclosure doc)

Question 2

What does COBS 6.1 B.9 say about the payment of adviser charges, including by means of a platform service?

Answer 2

For a firm that offers to facilitate, directly or through a third party, the payment of adviser charges, including by means of a platform service must:

1. Obtain and validate instructions from the retail client –
   A. Firm must obtain clear instructions from the retail client regarding the adviser charge, ensuring the client agrees to the terms and amount.
2. Offer flexibility in adviser charges –
   A. Firm must provide sufficient flexibility in how adviser charges are structured and paid, ensuring the client’s needs are met.
3. Ensure payments align with the agreed terms –
   The firm must not:

A. Pay adviser charges to the adviser in a way that significantly differs from the agreed terms or timeframes for the charge (e.g., paying out charges too early or in larger amounts than agreed).

B. Pay adviser charges that cannot be recovered from the retail client (e.g. paying charges that the client has not agreed to or that cannot be collected).

Question 4

Does advisor charging also apply to product providers advising clients directly on their own products?

If Yes, explain this concept further

Answer 4

1. Yes - it does apply.
2. Product providers must ensure that the level of its adviser charge is “at least reasonably representative” of the adviser services provided
   I.e. charge must reflect the actual service the adviser has given to the client
3. Adviser charge should not include costs associated with manufacturing and administering the product
4. Product providers must take reasonable steps to ensure that the product costs are not structured in a way that misleads or conceals the distinction between product costs and adviser charges.
5. Clients can choose to pay the charge upfront or have it deducted from their investment.
   Note: For deduction from investments - product providers should obtain clear instructions from the client on the amount to be deducted
6. Payment can also be made and instalments (if it’s an ongoing service)