To like or not to like, adviser charging and US clients

Financial services sector head John Salmon brings you insight and analysis on what really matters in the world of financial services.

In July Rory Cellan-Jones wrote about his experiment with a Virtual Bagel. These downloadable bagels supported by a Facebook page and an advertising budget of $10 per advert received thousands of 'likes' within days.

The trouble was that most of those 'likes' could be disproportionately traced back to Facebook users in Egypt, Indonesia and the Philippines and not users in the UK and the US who had equally been targeted.

This week Facebook has responded to the unwanted attention its like button has been receiving in recent times by notifying the world of its "newly improved automated efforts" which are "specifically configured to identify and take action against suspicious Likes."       

For financial institutions, it is possible for the 'like' button and social media engagements generally to result in compliance complications. Financial promotions which rely on false online indicators may be considered unfair, unclear and misleading advertising.

But of more concern to the Financial Services Authority (FSA) are promotions communicated through social media which lack risk warnings. It seems that there is always a temptation when using a social media platform to deal with risk warnings only once when the promotions involves a series of communications, to deal with warnings through linked content, or place them in the least prominent positions on a webpage.

The FSA however has been of the view for some time now that all financial promotions must be "stand-alone compliant" and must "prominently" display risk warnings.

At least in terms of Twitter, the FSA has specifically stated in respect of risk warnings that:

"Twitter limits the number of characters that can be used, which may be insufficient to provide balanced and sufficient information."   

For advertisers this may seem unduly restrictive, but at least regulators are no longer suggesting complete avoidance of financial promotions by means of social media.   

The RDR is coming

In other financial services technology news, the RDR deadline is now only a few months away and the FSA is closely monitoring the initiatives that product providers and platforms take to deal with the new rules. In the August edition of its RDR newsletter (3-page / 259KB PDF), the FSA has suggested that it will be focussing its attention on the distinctions product providers, platforms and advisers make between 'product costs' and 'adviser charges'.

For product providers and platforms that also offer advice, the newsletter suggests that the FSA will not look favourably upon adviser charges that have been stripped bare as an adviser charge must be "reasonably representative" of the services offered. In the FSA's opinion this would include "things like IT costs, marketing budgets, property charges and costs relating to business development".

There has also been some talk about the implications of the US Foreign Account Tax Compliance Act (FATCA) which is to come into effect 30 June 2013. The suggestion is that the reporting requirements imposed by FATCA will not only impact on platforms that accept business from UK based US taxpayers, or which carry US assets, but will require all platforms to put new systems in place that enable the identification of any customer who potentially may be a US taxpayer.

The discussion is another reminder that platforms must now begin preparing for the issues beyond the RDR that will define how financial services are delivered in the future. Direct to customer selling, the provision of automated advice and convergence of market participants may each be developments that have a transformative effect on the industry.