The U.K.’s Office of Fair Trading warned recently that advisers who utilize a retainer structure to implement adviser charges may be required by law to hold a consumer credit license.
Under the Consumer Credit Act of 1974, businesses that lend money, offer goods or services and provide certain credit services to consumers are required to be licensed by the OFT. Conducting business without a license under the OFT could result in fine and/or imprisonment, Financial Times Adviser reports.
An OFT spokesperson said that if a “significant” period of time lapses between contracts undertaken and the payment of a fee, advisers, including individuals using a quarterly retainer structure, could inadvertently break the law.
“Where they are receiving services upfront and not paying for a significant period down the line, then they could need a credit agreement,” the OFT spokesperson said, according to Financial Times Adviser . “It is possible that if they are paying quarterly the financial adviser would need a license. The onus is on the financial adviser to check their liability in this instance.”
Advisers who charge monthly retainer fees, however, are unlikely to fall under the rules or to require a license, thereby allowing them to serve low-value clients.
“The whole idea of monthly retainers is to help spread the cost for the client and we haven’t got to worry about applying for a consumer credit license,” Kevin Edwards, a chartered financial adviser at Midland Financial Solution, said, Financial Times Adviser reports.