Wraps that claim they are already facilitating adviser charging via their central cash account are potentially misleading advisers.
Skandia urges advisers to check whether the process in place with their current platform is compliant, rather than just taking the platform's word for it.
1. Skandia has identified three main areas of potential danger for advisers:
Wrap providers claim advisers do not need to show the effect of advice charges
Wrap platforms may believe that advisers who use them are exempt from the requirement to show the effect of charges to customers, as the cash account sits outside the packaged product. They claim it is only cash accounts that sit inside the product wrapper which are caught. However, where units are deducted from a packaged product to fund adviser charges via the cash account, for example if the minimum cash account balance is breached, the adviser charging rules will apply. In these cases the adviser will need to show the effect of the unit deduction on the customer's investment. Can wrap platforms facilitate this for the adviser?
2. A cash account may not be the most cost effective way to pay adviser charges
There may be instances where it is beneficial for the customer to pay adviser charges from the packaged product, rather than via a cash account, and advisers are required to consider this. For example, if adviser charges are taken out of a pension, they benefit from tax relief, making the charges cheaper than if they were taken from a cash account. Will wrap platforms enable unit deduction if requested by advisers?
3. Fee forms might not be compliant with adviser charging requirements
A form that simply shows consent for payments to be made to advisers will not necessarily be compliant with the adviser charging rules. In order to be adviser charging compliant, fee forms must meet the four following criteria:
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Service and cost: Advisers must make different charging options clear to customers and offer choices. For each option, this must include the services offered and the cost of these.
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Disclosure: Advisers must explain and disclose how advice charges impact investment returns.
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Suitability: Advisers must consider the most suitable / cost effective way for customers to pay adviser charges.
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Right to cancel fees: Advisers must explain to customers how they can cancel the service and have systems in place to return fees that were paid in advance for the service that has been cancelled.
Nick Dixon, Skandia's marketing director, comments:
"It is worrying to hear some platforms claiming that they are already facilitating adviser charging. There is much more to adviser charging compliance than simply being able to pay an adviser via a customer cash account and some platforms don't seem to be making any effort to provide guidance to advisers to help them achieve a compliant outcome via their platform.
"I would encourage advisers to check the process and documentation other platforms claim to be compliant. It is clear what the FSA is looking for and advisers now need to satisfy themselves that these requirements are being met."
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