IMA: Adviser charging will have 'perverse' tax implications

Laurel & Hardy

"Another fine mess the FSA have left us in" How many more reasons does the regulator need to scrap RDR? Maybe scrapping itself!

Posted by: Incompetent Regulators Awards Team

Great ideas are just that.

I suspect there are many advisers out there who when asked skewed questions will say that practically everything in RDR land is a good idea. The problem with good ideas, is they don't always work in practice and the nearer we get to the RDR cliffedge, the more people are coming to see just how many loose ends there are. This is wht I have been saying for ages, the RDR itself is not bad, it is simply the timleine combining so many unexpected consequnces which is.... As do VAT, whilst the VAT threshold is £70k 10-11 and £73k 11-12, how many IFAs have a turnover below £150k per RI? If one man either directly regulated firms or ARs are allowed to make use of the Flat rate VAT allowance, then the extra work involved might not be too onerous (I didn't say it woudl nto be a pain in the arse). As such I think I read the flat rate HMRC VAT charge on Financial Services was 9% (rather than 20%) and I think that you then pay based on total turnover, but charge the client VAT on VATable work only. The HMRC flat rate for FS appears to be aimed at banks, rather than mixed advice and interemdiation, so it could be worth a professional or trade body discussing whether a seperate flat rate would be appropriate for advisers. Of course, this would not work for any firm or individual adviser with turnover in excess of teh £150k limit, but it may be worth a look. Anyone else looked at this? I'm due to sit R03 in about 3 weeks time, hence why it's come to mind.

Posted by: Phil Castle

wooHoo - the IMA woke up!!

Fair play, it's not like the IMA to be so 'on the ball' - they're only a little bit late (jokes!) coming to the table with comments the IFA community (myself included) were putting to the press 2 years ago. As always, it's the end consumer who will be disadvantaged by the FSA's RDR initiative, but I do wonder (call me a cynical old git) whether HMRC had something to do with this - particularly given the current state of the country's purse. You can amost imagine HMRC and Hector sitting down and HMRC asking 'how can we get more revenue from punters to cover the bank bail outs?' and Hector replying 'bring the financial services industry into the realms of VAT!' Priceless!

Posted by: You must be joking

How do the banks do it?

I've not found the answer to this but how come VAT is not charged on Arrangement Fees which accompany most sorts of commercial and residential lending? If these fees are exempt can we not just re-word what we do from financial advice to financial arranging?

Posted by: Rob Simpson

OH Dear !!

I would love to be a fly on the wall as the FSA think tank put thier proposals through for RDR, I can only assume as they sit there sipping the filtered coffee and nibbling on the danish pastries coming up with new ways destroy an industry. Fact is ! RDR is the worst idea since Olaf the Hairy head honcho of the vikings ordered 50,000 battle helmets with the horns on the inside.

Posted by: DH

At last - something for the little guy.

Let’s take a hypothetical small trader Total Income £240,000 Of which £60k is trail. £45k is direct fee and the remainder transactional. Now suppose for the trail the adviser offers valuations and switching at no extra cost – we can then have a discussion as to whether this is transactional or not. The probability is that it will be. So the only VATable amount would be £45k which leaves £28k headroom before becoming VATable. Hey presto your small adviser has an immediate 20% price advantage over the big boys. Thank you FSA! The John Lewis pricing model lives on!

Posted by: Harry Katz

Chaos

Actually the RDR is fine in principle. It is the implementation of adviser charging which is a serious problem. Firstly issues of VAT and to ensure that all clients receive equal treatment from VAT. Secondly there is a conflict between advice and product. Thirdly there is a serious issue regarding legacy or pre RDR plans. Why should a firm charge £500 for an ISA under adviser charging when they are receiving £2,000 in trail on that client's pre RDR investments which they are not disclosing? We have been adviser charging for years, it works well, is TCF and the FSA screw it up. We want to disclose under adviser charging legacy commission (and fees) and believe all firms should do this. It is TCF.

Posted by: Sam Caunt

Whats New?

VAT has alway been an issue with existing commissions/fees/adviser charge (all the same thing, a different word and different payment method, the key being the amount you charge shoud obe the same!!)the main point not being how a client pays for services but was it a service of advice or for advice that led to the arranging of a policy, the later being exempt from VAT. As for how RDR and adviser charges will affect Income Tax and CGT, this is an issue I have asked at every wrap proveider at presentations, and as yet all have avoided giving any crediable answer or guidance other than saying yes the cleint coudl be affected. As with all these things, the greedy are bull dozing ahead without a thought for the client. I have no issue with use of platforms where relevant, but in most cases RDR is making life more complicated and therefore more expensive for the client, so to date I have avoided wraps. Experience tells me to be the last to act on these things and you'll make a more informed choice as the rule makers normally see the errors of their ways and providers offerings will be more comprehensive.

Posted by: Wahts news?