The end of the local
We are due this year for a shake-up of epic proportions. After the RDR, legacy commission (that is, automatic indexations regular-premium renewal commission, level and trail commission) can still be transferred en bloc but if the servicing adviser gives advice on the legacy product they would not be entitled to receive this commission.
What does this mean in practice? If fully implemented, advising on the legacy product would result in commission being switched off whereas if the adviser had not provided the advice he could continue to receive the commission.
If this is introduced in what appears to be its current form, I see enormous problems ahead as this would mean that even a small inquiry from a client which could easily be answered over the phone, would cost the IFA their commission.
Other problems are already emerging as many product providers do not have the systems to deal with such changes on individual policies.
After the RDR, where customer-agreed charging replaces traditional commission, remuneration will be a matter decided between the adviser and the client. There will, in theory at least, be no such thing as passive income for investment advice after the RDR as a specific remuneration and a service agreement will need to be made between the adviser and the client which the product provider will simply facilitate.
As customer-agreed remuneration is between the client and the adviser, bloc transfers of agencies will, as far as I can see, not be possible and will require the consent of every client individually.
There is a great deal of clarification required and a lot of practical problems ahead which will require a fundamentally different type of IFA.
The days will soon be gone of the local IFA that a client could call for a bit of a chat about his old pension policy and that endowment he took out 20 years ago. Instead, there will be an IFA which is run as a business with better financial and other resources.
Transactional IFAs are dead in the water and the banks will be left to deal with the small clients. Combine all this with the worrying state of the economy and we have a recipe for a much reduced IFA sector this time next year.
Sheriar Bradbury is managing director of Bradbury Hamilton