Guidance on Adviser Charging

The adviser charging requirements apply to all firms that provide independent or restricted advice on retail investment products. For all new business carried out from 31 December 2012, you need to set out and agree with your clients the services they require (including initial and/or ongoing services) along with the charges for those services. The FSA does not mandate how you should charge for your services (subject to them meeting the adviser charging rules) so how you choose to charge for your services post RDR is largely a commercial decision.

Whatever charging structure you decide to adopt, the key challenge will be to develop and implement a model which is profitable and sustainable over the long term.

Our business development team has a range of practice development guides to help you to do this.

This guidance looks at some of the things you need to think about in practical terms around the payment and collection of adviser charges.

Paying Adviser Charges

In practice, the main methods of paying / collecting adviser charges will be:

Client pays a fee directly to the firm;
Facilitation by product / platform provider;
Payments via a platform cash account.

There is unlikely to be a one size fits all solution so you may need to consider offering different options to meet different clients’ circumstances. These options are discussed further below.

Client pays a fee directly to the firm

Under this arrangement the fees for your services are invoiced to and collected directly from the client, for example, the client could pay your initial service fees by cheque, and then set up a standing order from their bank account to pay for your ongoing services (if provided).

Although this is potentially the most straightforward method of payment, you will need to ensure you have the mechanisms and controls in place to support fee paying clients for both initial and ongoing services. This will need to include (for example) the facility to invoice fees, a mechanism for collecting and recording payments and also the ability to monitor payments and chase outstanding fees. You also need to consider when ongoing payment arrangements need to be reviewed (for example, annually).

Facilitation by product / platform provider

Adviser charges can also be paid by deductions from the client’s investment where a product provider (or platform service provider) is able to arrange this. ‘Facilitation’ takes place where the client pays a single amount to a product provider who then pays the adviser charge to the adviser.

The adviser charge can be deducted as a lump sum or, if an ongoing service is provided or the product is a regular premium one, as a series of regular payments. Under the RDR rules ‘factoring’ is no longer permitted therefore any deductions from the client’s plan will need to be matched to adviser charges payable to the firm.

Each provider / platform will have decided on its own process for facilitating adviser charging and you will need to make sure you are familiar with these. Typically we expect providers to offer the following ‘shapes’ of adviser charging payments (where applicable to the product).

Initial payments – to pay for services received in establishing a contract
Ongoing payments – to pay for the ongoing services received during the lifetime of a contract
Ad hoc payments – to pay for services received on an adhoc basic that are not covered by initial or ongoing service payments

It may be possible to take adviser charging from existing contracts where the provider is able to facilitate this but for commercial reasons this option is unlikely to be available on all legacy contracts.

Many providers / platforms are now publishing their approaches to adviser charging and the types of adviser charging payments they will be able to facilitate through their products, although some have yet to do so.

Our website contains links to the RDR / adviser charging information for many of the main providers and platforms. Where available we have also included links to providers’ product specific adviser charging information.

Before facilitating the payment of an adviser charge the provider must ‘obtain and validate’ the client’s instructions to make the payment. Again, each provider will have its own process for doing this.

When facilitating adviser charging providers can either:

Put all the client's money into their chosen product and then take out the adviser charge.

It is here where it is essential that the investor has a full understanding and accepts that there may be a tax liability triggered in certain circumstances.

Deduct the charge from the initial amount received and put the remainder into the product.

Essentially here the provider is merely administering the adviser charge outside of the product and then investing the remaining funds in the product. Therefore, an alternative to this approach would be for you to ask the client to make two separate payments, one directly to the firm for the adviser charge and a separate payment of the remaining funds to the product provider.

Where the payment of adviser charges is being facilitated via a product or platform it is important that you can demonstrate that it is in the client’s best interests to pay in this way and that the client understands and accepts the implications of using this method.

Payment of adviser charging via product disinvestment creates a whole new range of tax considerations. For example:

ISA /

Once a withdrawal is made from an ISA, it cannot be replaced and therefore the tax advantage enjoyed by the monies deducted is lost.

Investment Bond /

Any deduction made from the Investment Bond is classed as a withdrawal and will impact on the 5% tax deferred withdrawal facility under an investment bond.

Collective investments /

Any disposal of holdings in a Unit Trust or OEIC will potentially trigger a charge to capital gains tax therefore impacting on the investor’s annual exempt allowance.

Pensions /

Adviser charges cannot be taken from pension arrangements if a proportion of this charge relates to non-pension services. If payments are used to cover non pensions charges this is likely to be deemed an ‘unauthorised payment’ and could therefore create a tax penalty.

Of course, tax is not the sole consideration but it is nevertheless an important part of the adviser charging equation, to enable your clients to pay adviser charges with the least possible financial impact. Depending on the client’s circumstances using product disinvestment rather than fees could potentially provide tax advantages, for example taking fees from a pension (subject of course to the restrictions covered in the table above) but in other circumstances taking adviser charges via disinvestment could result in the client incurring an unnecessary tax charge.

The key message here is that as an adviser you will need to weigh up the pros and cons depending on your client’s circumstances. If paying adviser charges via disinvestment creates tax consequences it will be important for you to understand the effect so that you can discuss with the client and advise accordingly.

Any such discussions should be fully documented and reiterated back to the client in their suitability report.

Product disclosure where adviser charging is facilitated via a product provider

Providers who facilitate the payment of adviser charges through their life and pension products will need to disclose any facilitated adviser charges in the product KFI. For example:

‘You have agreed with your adviser that the cost of their service will be taken from this plan, as follows:

From the monthly payments we will take £15.0% from each payment for the first 36 months. This totals £675.’

If the adviser charge is taken from the product after the investment is made the provider will need to reflect the total charges (i.e. both the product and adviser charge) in the ‘effect of charges’ table and ‘reduction in yield’ statement.

Where a new or increased adviser charge is to be facilitated through an existing product, it is not compulsory for the provider to provide a new KFI although the client must be at least be given ‘enough information about the likely effect of the facilitation’ so that they can make an informed decision.

Payments via a platform cash account

The FSA considers the payment of adviser charges from the funds held within a platform cash account as an acceptable way to facilitate adviser charging providing that this method is suitable for the client’s individual circumstances. With an ever increasing amount of clients holding platform based investments we believe that (aside from direct fee payments) this could become one of the most common ways in which adviser charges will be paid going forward.

Where adviser charging is being facilitated via a platform cash account there is a need to ensure that the amount of cash maintained in the cash account is sufficient to pay adviser charges as and when they become due.

Many platforms recommend a particular amount that should always be held in the cash account. Some platforms have auto-sell arrangements in place where cash balances fall below a certain amount. Some platforms issue an alert where balances fall below a particular level. It is important that you understand the specific arrangements that apply to your particular platforms(s).

Maintaining an adequate balance in the cash account can be done in a number of ways. For example:

The client could make cash top ups into the cash account to cover adviser charges as they arise.

The client could make one off lump sum payments into the cash account to cover future adviser charging payments or alternatively set up a monthly direct debit to spread the cash top ups.

In other circumstances, the client may prefer that any adviser charges are covered by the assets held within the platform itself. If this is the case then it is vital that the investor has a full understanding and accepts that there may be tax liabilities triggered when investments are encashed, as detailed in the section above.

The FSA is very clear that disinvestment should not be used for funding the cash account unless the client is fully aware of the implications and has confirmed that they still wish to proceed. This is an important point, although platform providers may be able to facilitate disinvestment to the cash account, it is your responsibility to demonstrate that it is in the client’s best interests to do so. Also, if this option is selected it is likely you will need to actively monitor cash levels and disinvestment to minimise the impact on clients’ tax position and investment performance.

For firms who do not have discretionary investment management permission, any instruction to disinvest monies to fund the cash account must be agreed upfront by obtaining an explicit client instruction.

The client’s instructions must not allow any adviser discretion in terms of date, frequency and how much will be disinvested, either in percentage or cash terms. In a similar vein to portfolio rebalancing, if ongoing disinvestments are to be made, once selected, these need to happen ‘mechanically’. Also if any changes are made to what has been set up initially then a further specific client instruction will need to be put in place.

In using this option, things you need to consider include:

Is disinvestment suitable for the client and in their best interests?

Has the client been made aware of the tax consequences of disinvesting from the relevant tax wrappers and funds?

Which products / tax wrappers will the disinvestment be made from and in what order?

Which funds will be chosen for disinvestment or will it be taken across the portfolio?

Where are the disinvestment monies to go?

When will the instruction take effect from and when will it need to be reviewed / renewed?

Are you (and your client) aware of what will happen if there is insufficient money in the relevant cash account to fund the agreed adviser charges?

What action will you take if the adviser charges are not paid?

What documentation / instruction will your platform provider require to put the client’s instructions into effect?

Once again, the key message here is that as an adviser you will need to weigh up the pros and cons depending on your client’s circumstances. If funding the cash account creates tax consequences it will be important for you to understand the effect so that you can discuss with the client and advise accordingly.

Any such discussions should be fully documented and reiterated back to the client in their suitability report.

Supporting Guidance and Documents

Template Documents Available

External Links

Threesixty Practice Development Guides /
RDR –links to providers /

Additional Threesixty Support

Compliance Help Desk /
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Guidance on Adviser Charging