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FSA clarifies that legacy commission is to be axed

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The FSA has written to trade bodies to clarify that legacy commission will be banned under the RDR.

In a letter sent this week, the regulator also confirmed that trail commission will be allowed to continue, provided that a contract and advice is given before the RDR deadline on December 31, 2012.

The FSA defines legacy commission as additional commission payable under a contract signed before December 31, 2012 but as a result of an event that takes place after that date. The FSA announced its ban on legacy commission in its policy statement on the distribution of retail investments in March 2010.

Forty Two Wealth Management partner Alan Dick says: “What the FSA is trying to do here is ensure that advisers receiving commission are actually providing a service that has been agreed with the client, which is absolutely fair.”

But Adviser Alliance founder and director Alan Lakey says: “The regulator cannot see that most advisers deal with ordinary people who are not comfortable paying fees. These people prefer to work on a commission basis.”

An FSA spokeswoman says: “We keep up dialogue regarding RDR. In the case of legacy commission, the FSA has reiterated that this commission will be banned after December 2012.”

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Readers' comments (56)

  • What about contractual increases such as indexation, or whole of life maximum cover type plans?

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  • So the insurance companies are to get the benefits of the commission that would normally be paid to the advisor providing the service to the client. Nice one yet again the client dips out and the insurance companies pocket the cash!

    This means that when you takeover a clients affairs unless they are prepared to pay a fee on an annual basis, why should any advisor service the contract. For example change of address, change of name on marriage, put the policy into trust, explain the benefits, switch funds when the client is nearing retirement or maturity etc etc etc. Why take on the liability without the reward no matter how small it is.

    Why change something which has been around for years and has worked!

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  • SURELY, SURELY, one of these days by the law of averages the FSA will get something right. Alas, not on this occasion.

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  • Dialogue with whom? And what ever comes of such dialogue?

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  • How will this be policed I wonder. Does this mean renewals on all policies written before the deadline will no longer pay incremental initial or incremental renewal ? Sounds like a commission admin minefield to me ... Very dangerous ground for IFA practices I think. Especially if they have no dedicated accounts resource ... and even if they do it represents yet more cost and time issues. Maybe we should all go and work for the FSA - no requirement for profit or proper business management outcome there !

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  • Maybe the commission lost to the advisers will go to enhance the FSA fat cats pay. Oh and help pay for the increased budget requirements. Nice one chaps!!

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  • An FSA spokeswoman says: “We keep up dialogue regarding RDR."

    What does this mean, exactly? From where I sit, it means "You can say what you like but we won't take a blind bit of notice because we're always right". I certainly haven't noticed much dialogue!!

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  • It appears that some people are unable to accept any decision as reasonable, this is clearly to the benefit of consumers. We can't have arrangements for legacy commission payments being set-up it will undermine the new rules. Some advisers seem to think only of commission, commission, commission - no wonder the regulators have such a poor opinion of us and feel we are dinosaurs. Change is good it freshens things up and will clean up this industry which is long over due.

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  • RDR is about 2 things.
    1 Qualification standards.
    2 Commission or fees.
    It is costing 1.6 BILLION.. mad mad mad, bonkers bonkers bonkers.
    1. Qualifications....the bar has been set, make new advisers qualify at this standard and grandfather existing CAS advisers.
    2. Give the client a CHOICE as they will have to meet the cost. Commission alows clients to spread the cost over a longer term for those who may not be able to afford costs up front.
    Why can't the clients be given a choice and why is it costing 1.6 BILLION?

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  • Confused - what does legacy commission refer to and what is this about before and after 2012?

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