Aegon’s response to the FSA legacy assets consultation paper actually focuses less on legacy commission and more on trail. The ban on legacy commission means the FSA will not allow additional commission on advised top-ups to pre-retail distribution review products, creating consumer detriment for many existing customers – and complications and costs for advisers and providers. But things could get much worse.
The paper says trail commission can continue if it is “payable for advice provided pre-RDR”. This can be interpreted as meaning it has to go if it is paying for post-RDR advice. But how often will what it is paying for be properly documented? And legally, commission is a provider/adviser agreement with no link to any adviser/ customer service.
If the FSA goes with this interpretation, advisers could lose future trail commission if, for example, they advise on a fund switch within a bond or pension. This, coupled with the legacy ban, takes us way beyond anything originally envisaged within the RDR.
This interpretation also conflicts with Conduct of Business Sourcebook rules published in November 2011 that allow trail commission to continue if the customer changes adviser, provided there is an ongoing service. This does not fit with having to switch off trail if post-RDR services are provided.
Aegon’s biggest concern is that switching off trail would discourage existing customers from seeking advice. Such customers often receive ongoing advice for no extra charge, funded by previously agreed trail commission.
Advisers who have built a model around an ongoing flow of trail commission to fund ongoing client services will take a financial hit and providers will face another implementation challenge.
These issues would go away if the FSA extended its definition of trail to “any ongoing commission payable in respect of a pre-RDR investment that is not being increased as a result of post-RDR advice” and allowed this to continue.
Others have raised concerns over future differences in the treatment between bonds and collectives – moving between collectives represents a new post-RDR contract and requires a move to adviser charging. But bonds and collectives have always been different.
Existing bond customers can switch between funds within the same product and many are receiving ongoing advice on this, funded by trail, at no extra cost. Who benefits from separate payment?
Aegon supports the RDR and adviser charging for new business but imposing elements of this into existing adviser/client relationships will create detriment for customers, advisers and providers. Banning trail on post-RDR advice would need a proper cost-benefit analysis and certainly should not be considered for end-2012.
We hope the FSA concludes that for many existing customers, trail commission helps deliver the good customer outcomes the RDR was designed to deliver.
Steven Cameron is head of regulatory strategy at Aegon