The FCA has published a new web page concerning initial advice charges for lump sum investments. The web page is in response to the Financial Advice Market Review (FAMR). It was mentioned in the FAMR report that instalment-based payments could make financial advice more affordable and accessible for some consumers, provided that the terms of the instalment payments are clear and fair. The report noted that firms did not appear to be using the flexibility permitted by the rules to offer more convenient payment options to consumers. It recommended that the FCA draw firms’ attention to the flexibility available.

The web page therefore explains how the FCA’s rules offer some flexibility to firms to allow clients to pay in instalments for advice on a lump sum payment. The web page also notes that allowing a retail client to pay by instalments, instead of paying in full at the time of the advice, is likely to amount to providing credit. It is noted that the ‘instalment exemption’ under the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 has been amended so that it applies where there are no more than 12 instalments within 12 months. However, it only applies where the credit agreement involves no charges or interest (which means there can be no administration fee). Where the exemption does not apply, in addition to holding the relevant permission, the adviser would need to ensure that they meet all pre-contract formalities for entering into a regulated credit agreement, as well as post-contract requirements.

The web page also mentions that the FCA’s rules include guidance for adviser firms to remind them that, in meeting their responsibilities under the client’s best interests rule and its Principles, firms should consider whether the advice is likely to be of value to the client when the total charges the client is likely to be required to pay are taken into account.

View Initial advice charges for lump sum investments, 15 December 2016