The FSA continue to find concerns with how advisers are determining a client’s attitude to risk (ATR) and are embarking on a number of road shows to highlight the issues. It is likely ATR procedures will also be reviewed at any near future visits the FSA undertake.

• the Pensions Management Institute.

• if a client chooses to move to a different adviser, the trail commission can be re-registered to the new adviser, but an ongoing service must be provided in return for the commission; and

• if an adviser sells their client bank to another firm/adviser, for example, when he retires, so that there is a bulk transfer, the trail commission can also be re-registered. An ongoing service to individual clients does not have to be provided in this case

The FSA has recently announced it will be ‘actively reviewing’ the progress of firms’ progress in meeting RDR requirements as the deadline approaches. This may include visits.

Professional standards

We have provided a brief summary below of the action that we would recommend firms take as a result of the new rules on professionalism:

1.       Review each adviser’s existing qualifications and determine a route for each adviser to achieve the level 4 qualification requirement including a timetable for taking exams which allows sufficient time and flexibility for unforeseen circumstances such as failing an exam.

2.       Once exam requirements are achieved determine gap fill required for each adviser and ensure that they timetable structured CPD activity to meet gap fill requirements. FSA’s expectation that advisers will need to complete 16 hours gap fill on average.

3.       Ensure that each adviser is a member of an accredited body and by the end of 2012 has obtained or will obtain a Statement of Professional standing within 60 days of 31^st December 2012 (otherwise failure to do so much be reported to the FSA) and on each anniversary.

At this stage we would expect advisers to have decided on a route to achieve the level 4 exam requirement and have commenced and even be finalising taking exams. Firms and advisers should remember that exam sittings may become scarcer during next year due to the volume of advisers wanting to take exams. There are numerous exam options available which included purely question based exams to more practical scenario type exams.

Advisers who have completed exam requirements should have also completed a gap fill exercise. We are aware of very few options for doing this other than the CII gap fill tool and PFS gap fill tool (which is actually the CII gap fill tool accessed through the PFS). Unfortunately these tools are only available to members. While it is technically possible to use the FSA’s published learning points and compare these to the syllabus of each exam an adviser holds we consider this would be unrealistically time consuming in practice.

We would recommend that advisers aim to achieve the qualifications requirements and completed gap fill as soon as possible to allow plenty of time to register with an accredited body (if not done so already) and obtain a SPS as soon as these are available since again volumes of applications near to the deadline are likely to cause delays.

Adviser charging

During the course of RDR there has been much discussion over the segmentation of clients into varying groups of service level. Generally we are seeing firms implement two to three segments across their client bank. This usually starts with a top category of clients that receive a proactive ongoing service which includes regular adviser initiated meetings and reviews. There may then be a middle category of clients which receive less regular attention but still meeting with an adviser once a year for example and will receive some service such as valuations in the interim. The bottom level of service usually relates to clients who take advice on an ad hoc irregular basis and who do not wish to pay for ongoing reviews. Firms who are deciding to segment their clients into service groups need to clearly describe the level of service that a client gets at a given service level and what the cost will be.

The post 2012 rules state that firms must use an appropriate charging structure for calculating their adviser charge for each client. FSA make it clear that they expect similar competing products to exhibit similar adviser charges.  For example under the new rules firms could not make a greater adviser charge for the advice to invest in a bond as opposed to a unit trust. In drafting a fee tariff firms will need to consider:

• whether to charge a fixed amount for a particular service, or to adopt a price tariff based on the amount of money to be invested (e.g. a percentage of the portfolio) or the time taken to provide the service

• whether to charge a separate price for any initial discussions or meetings before the personal recommendation is given, and the reasonableness of that charge

• the approach to take with clients who choose not to go ahead with a personal recommendation, in other words whether to make a charge irrespective of whether a recommendation is accepted

• the approach to take with clients who choose to go ahead with a personal recommendation, but change their minds and cancel the product within its cooling-off period

At this stage we would consider that firms should have already started to segment clients if that is their intention since this could take around 6 months if it involves communication with clients to explain the new service levels and agree which service level is most appropriate to each client. Segmentation will need to be finalised prior to implementation of RDR so that a smooth transition is possible. Firms also need to be considering their tariff of charges as the post 2012 rules go further than the existing requirements. Fee tariffs will need be comprehensive and clearly indicative of the actual charge to be paid i.e. hourly rates will need to include an indication of the total likely charge for a service and fees based on a percentage will need to include cash examples. Ongoing service will also need to be costed and agreed with the client in advance.

Swaines advise firms to ensure that they meet the FSA rules relating the promotion of UCIS. Please contact us if we can provide support to your firm in review historical UCIS sales or ensuring that you are meeting current FSA rules.

However, the HMRC policy adviser, David Coppins confirmed that HMRC has now moved away from this position and stated that “the VAT liability of the process is governed by the intention. If the intention of the agreement between the customer and the adviser is to enter a process leading to the arrangement of an exempt transaction, this is VAT-exempt intermediation. If this is not the intention, then the supply would be advice and therefore taxable.” Since the service of arranging a financial product is VAT exempt, this would indicate that any advice where the original intention was to arrange a financial product would also be free from VAT.

This marks a move from HMRC from looking at what the predominant service is to what the intention was at outset.

HMRC says it is working to produce draft guidance on VAT and adviser-charging in late October. This will be followed by industry consultation, with full guidance due to be published by “early 2012”.

The phasing in of the new rules for firms will now start on 31 December 2013 with the full requirements in place by the end of 2015, giving firms who need it more time to build up their capital resources to the required levels.

Under the new rules, all personal investment firms have to hold capital resources worth at least three months of their annual fixed expenditure in realisable assets such as cash.   Many firms currently classed as ‘B3 low resource’ will be required to hold significantly more capital, for example a firm which is currently required to hold £10,000 will find this increasing to £20,000 or three months fixed expenditure (if higher).