Skandia supports 'sunset clause’ on legacy commission
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Skandia says that introducing a ‘sunset clause’ on legacy commission would allow the industry to make a more orderly transition to adviser charging.
The clause would allow advisers to continue to receive legacy commission for a period of five years, but once that time period is up, legacy commission would cease.
In March, the FSA sent a letter to trade bodies clarifying that legacy commission will be banned post-RDR, as opposed to trail commission brokered pre-2013 which will be allowed to continue. 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.
Skandia believes the FSA is now looking at creating a distinction between insured and non-insured products, where insured products can continue to pay legacy commission post-RDR. It suggests this would create an uneven playing field and could lead to a bias being retained in the system.
The provider warns the FSA’s legacy commission rules would be “impractical to implement” and have “unintended adverse consequences”, including increasing the cost of RDR implementation for firms.
Skandia UK chief executive Peter Mann says: “Our view is that the RDR aims of fairness, clarity and consistency will actually be better served by a pragmatic decision to apply a ‘sunset clause’ to the payment of legacy commission. Allowing legacy commission to disappear over an extended period, rather than in haste, will enable the industry to make a more orderly transition to adviser charging.”
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Readers' comments (6)
Grosvenor | 28 Jul 2011 12:14 pm
LET US BE CLEAR. Peter Mann needs to define what he means by legacy commission and soon! If this is going to be the corporate philosophy of Skandia then I have very little time left to switch £20 Million of business from his platform.
Is he referring to trail commission on existing business being stopped in five years time? Or merely to fresh Initial Commissions on increments whether contractual or not?
If the former then he has a battle of seismic proportions coming his way. Make your company's policy clear NOW Mr Mann.
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Anonymous | 28 Jul 2011 1:08 pm
£20 million is a drop in the ocean to Skandia and other large providers, no insult intended.
Trail commission should be stopped.
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Paul Smith | 28 Jul 2011 1:10 pm
Interesting to read the comments from Peter pushing for a ‘sunset clause’ on legacy trail commission post RDR. There has been lots written about stopping this commission being paid to IFAs but a lot less about how the product providers will refund or rebate it to clients when it is no longer being paid to an IFA. I don’t think most product providers will have the computer systems to cope with this legacy business so will they just use it has an excuse to retain it themselves?? Will the FSA just let this happen??
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Richard Wright | 28 Jul 2011 1:29 pm
Im sick and tierd of buzz words !! what the hell is "legacy Commission" can someone explain in very simple terms please?????
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Anonymous | 28 Jul 2011 1:42 pm
re: Anon - 28/7 at 1:08 Trail should be stopped.
This depends, would you ban if the trail is used/ sold in a similar way to a retainer, just paid by the fund.
Perhaps an alternative wording could be used, similar to old Winterthur's Adviser Fund Based Fee.
Skandia could issue a statement, that allows IFA to submit a form from each client to change trail to become Adviser Fund Based Fee. Each client would therefore be re affirming that they are happy to a) retain the advisers service and b) continue to pay for that service.
IMO, removal of trail will encourage churning whether ethical or not.
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WTF | 28 Jul 2011 2:35 pm
Anonymous - 1:42 pm
'IMO, removal of trail will encourage churning whether ethical or not'
And let's face it, most IFA's don't need a great deal of encouragement...
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