The Financial Services Board (FSB) is tightening up on financial advisers who earn extra fees, sometimes on the quiet, to direct your savings into what are referred to as white-label unit trust funds or third-party portfolios.

White-label funds are collective investment schemes such as unit trust funds set up under the licence of a collective investment schemes management company, but the underlying asset management decisions are taken by the third party.

The initial objective in allowing this structure was to expand the collective investment scheme market by providing easier access for new entrants. In effect, a collective investment schemes management company rents out its licence and often provides a number of services, such as administration, to the third party until such time that the new entrant has sufficient investors and resources to go independent.

However, over the years, many financial advisers have seen this as a gap that allowed them to establish their own white-label funds, known as broker funds, into which they directed client money.

Most of the broker funds are funds of funds, with the financial adviser deciding how much should be invested in each underlying unit trust fund.

Reasons advisers have been attracted to broker funds include:

* Easier administration: instead of giving investment-switch instructions for each client, they simply invest the client in the fund of funds and then they need to make only a single switch between underlying investments; and/or

* Earning extra money: the structure opens the way for advisers to earn extra money from their clients. Many charge an asset management fee for managing the white-label fund. Many advisers also receive kickbacks in one form or another from the underlying asset managers, which the adviser may or may not pass on to you in the form of reduced fees.

Some broker funds are also marketed by other financial advisers, who may also receive kickbacks from the white-label adviser, which again may or may not be passed on to you as the client.

The FSB is concerned that advisers often do not tell their clients about the full extent of the payments they receive, with the potential for a conflict of interests.

The kickbacks being paid by the underlying asset managers could result in your adviser placing you in retirement investments that are not appropriate for you.

In a circular published this week, the FSB says that all payments to your adviser must be disclosed to you, as should the impact of the fees on your investments. You must give your consent for the payments, particularly if they are not being passed on to you by way of reduced fees.

Your adviser must also provide you with adequate and appropriate information to ensure the recommended investment is appropriate for your needs. You must also be provided with comparative performance data of the white-label fund on an ongoing basis.