The perception of the FCA’s agenda on price regulation is regularly in the news, and the more it is talked about, the more likely it could become reality. So it was no surprise to see this in the news this week more talk of NCD putting a cap on prices charged.  How worried should retail financial services be about this development, and in particular IFAs taking FUM ongoing charges?

The FCA has repeatedly said that it is not a price regulator and whilst some firms take the view that the Consumer Duty are essentially price regulation, I say you should not be overly worried. Whilst there is plenty in the Consumer Duty on Price and Value, the NCD is far more about Fair Value than it is about Price.  It is down to each firm to justify Fair Value in their Fair Value Assessment; ask yourself … does your proposition offer fair value or do you need to make some changes?

As part of this project on Price and Value and the Fair Value Assessment, I have spent much of the week examining in detail the MiFid regulations on costs and charges in investments, (still applicable in the UK all these years after Brexit – but I still live in hope for future changes). 

You will all be aware of the MiFID requirements on Costs and Charges and Periodic Assessment of Suitability, and the costs this places on your firm to ensure this is completed on all clients with an ongoing service. The question at the end of last week that made me have to search through the MiFID regulations (not my most exciting week in Compliance!) was about charging a Retainer Fee and whether or not this falls foul of MiFID requirements.  I was pleased to find buried in the legislation, and be able to confirm, that IFAs can continue to charge a fee for holding a client account, even where no active servicing is taking place.  The service must clearly specify what purpose the company have for continuing to extract fees. 

COBS 9A.3.3 of the FCA Handbook confirms that firms must highlight in a Suitability Report whether the recommended products are likely to require the client to seek a periodic review of their arrangements. If it does then you MUST provide an annual review of the ongoing suitability of these arrangements, but if a periodic review is not required (for whatever clear and apparent reason) then charging a retainer fee and laying out clearly what is included in that service is a possibility. 

Your fees could be taken for justifiable reasons such as keeping the file records updated, being available to discuss this account on the phone with no notice at all, keeping a track on pricing and charges, forwarding on provider information, or bringing anomalies to a client’s attention. But what you cannot do is continue to do is receive money without offering a service; those days are gone (in fact they went in 2012!).

by IFAC CEO,  Kirsty.turner@ifac.eu