PFS propose ‘CAAF’ solution in FAMR commission debate

17 February 2016

In response to Financial Advice Market Review and subsequent speculation on the subject of commission, the Personal Finance Society say that a solution is already available via a client agreed advice fee (CAAF).

According to chief executive, Keith Richards, a solution compliant with post RDR conduct of business rules could include the option for advice fees to be recovered over an agreed period of time from the client’s regular premiums – the same facilitated fee option that is popular for investments.

“As a professional body we would not be in favour of a return to commission of old for investment and savings,” he stated, “and this view is clearly shared by many across the advice sector. There is little adviser demand for a return to commission and it would have no appeal for most providers, given how capital intense and uneconomical it was.

“The advice profession has evolved significantly post-RDR and continues to gain positive recognition for the key role it plays. Despite the positive engagement by the government to seek solutions that will increase access to advice, especially for hard working people who want to do well for themselves, it is important we continue to move forward.

“However, the FCA and the Treasury are open to exploring options to recover a transparent advice fee from regular premiums, in particular for consumers who want to save but may be put off seeking advice because of up-front fees,” he continued.

“Three years after RDR abolished the factoring of commission into investment and savings products, transparent client agreed adviser fees can be facilitated via the provider or platform as a client option - so the potential to recover from a regular premium over an agreed period of time seems more down to who would want to offer this service.

“In order to best serve the interests of a wider segment of consumers, FAMR could result in the introduction of a simplified ‘CAAF’ option. It would certainly increase the options available for the public to pay for advice, reduce barriers to engagement and be capable of working equally well for full advice.

“More importantly, it can be implemented immediately, as there’s no conflict with RDR COB rules and it wouldn’t be commission as some suggested.

“Vertically integrated firms are already well-placed to operate such a system in a post-RDR environment, as recovery is easier to administer,” he concluded, “but as the idea would improve consumer options and access, it should be opened-up to all models.”