FSA clears up confusion over existing trail post-RDR
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The FSA has confirmed that advisers will be allowed to continue to receive existing trail commission post-2012, even when a firm is sold or joins a network.
FSA director of conduct policy Sheila Nicoll, writing in next week’s Money Marketing, says: “In requiring firms to abandon commission from 2013, we are not challenging your right to continue to receive trail commission for advice given in the past.
“If, at the end of 2012, an adviser firm has a right to receive trail commission, we will not be seeking to interfere with that. And if, for example, an advisory business is sold, our new rules will not prevent entitlements to trail commission from being transferred to the new firm.”
Nicoll says this applies to firms that change their authorisation from directly authorised to an appointed representative of a network, and vice versa.
She adds: “Of course, after 2012, it will not be possible to generate new trail commission entitlements and, over time, trail commission will peter out altogether in the investment market.”
The FSA previously said in its March policy statement that where a client moves to a new adviser, the client should receive the trail commission previously paid to the old adviser, leading Aifa to voice concerns about what would happen if clients are novated.
Aifa director general Chris Cummings says: “The recently announced trail commission rules threatened to undermine the financial stability of adviser firms. While trying to protect consumers, the FSA was in danger of fundamentally damaging firms, which in turn would adversely affect the customer.
“We are grateful that the regulator is listening to our concerns and those of the adviser community. We welcome clarification on this issue from the FSA.”
For Nicoll’s full article see next week’s issue of Money Marketing.
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Readers' comments (26)
Anonymous | 27 May 2010 12:30 pm
Oh well at least she understands what trail commission is. I wonder if she knows what it is for.
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Anonymous | 27 May 2010 12:39 pm
Anyone who takes this as read that they can continue to receive trail post 2012 without an explicit client agreement is very trusting indeed. I think the crux of this is the wording "right to receive trail commission". And frankly who can seriously argue that a client shouldn't have to explicitly agree. after all it is their money
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You must be joking | 27 May 2010 12:48 pm
The sun is shining and the FSA have come out with some common sense at last!
Summer must finally be here!!!
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Anonymous | 27 May 2010 1:19 pm
to: Anonylous at 12:39 pm.
No the trail commission I receive is NOT my client's money. It is mine. I specifically tell clients that I will be receiving annual trail commission, which pays for my servicing their business and is part of my overall remuneration. If they change their minds and want to have it paid to themselves, in the future, they are moving the goalposts. There might not be anything I can do about it but that doesn't make it morally right. An agreement is an agreement and too many IFAs seem willing to roll over and accept being screwed.
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Jack Morris | 27 May 2010 2:03 pm
The oxford Compact and the Collins Gem dictionary and Thesaurus, do not have the word
NOVATED.
Will the FSA get a grip and start using words that we understand.
Jack Morris
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Anonymous | 27 May 2010 2:18 pm
Agree with anonymous at 12.39 The trail is not the clients, it belongs to the adviser through an agreement made with the client.The adviser could have taken all payment up front but chose a % up front and the rest as trail. This makes good business sense as it helps during the lean times. If I sell a car with a transferrable warranty I can not go back to the showroom and ask for the warranty payment to be returned to me.The fsa must not interfere with broker/client agreements, otherwise none of us will have secure business models. If they can interfere with trail, whats to stop them interfering in fees and telling us to pay them back? This madman type power which the regulator has at present needs serious consideration by the new government. Otherwise no one in their right mind will enter an industry/ profession call it what you will, where the lunatics in charge can change things at the stroke of a pen, without due regard to the law.
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Martin Bamford | 27 May 2010 3:48 pm
I'm interested in the view of a couple of advisers here, both anonymous, who believe trail commission is a form of deferred initial commission.
In the current pre-RDR environment I am sure that this is one way in which this commission can be treated, assuming it has been disclosed as such to the client at outset.
Looking at this from a client perspective, I'm not sure that many investors would feel comfortable in paying a lower initial cost of advice, subsidised by an open-ended payment of commission to compensate the adviser for being so generous at outset.
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Paul Standerwick | 27 May 2010 4:36 pm
In response to Martin's comment I have a relatively simple solution compared to RDR and I'm not anon:
If clients don't want to pay trail commission or don't feel "comfortable" with it they shouldn't agree to it in the first place. Personally I rarely take trail but if an adviser wants to sell an ongoing service or for that matter as use trail as a form of deferred initial that should be up to him/her, as long as the clients aware of the situation and agrees to it what's the problem??
What the hell does novated mean, is this a mistake or the FSA trying to sound clever?
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Kevin Bailey | 27 May 2010 5:07 pm
The key comment fo rme is "She adds: “Of course, after 2012, it will not be possible to generate new trail commission entitlements and, over time, trail commission will peter out altogether in the investment market.”
So even though we have yet to have a finalised proposition we now know the FSA does not intend for us to have trail commissions on new business post 2012. Does this mean we will not be able to charge a servicing fee as mentioned above for the ongoing administration and service calls. There are 3 cost elements to any advice - the advice iteslf, the implentation of that advice and the ongoing servicing/review of that advice. I appreciate not all advisers provide all three steps and not all clients will want to pay for all 3 but the vast majority will expect all three to be provided but may not necessarily want to write a cheque each time.
Once RDIP has been finalised and published we will know (hopefully) what can be done. But we need to know now not 31st December 2012 so that any re-structuring etc can be accommodated in good time and existing clients informed accordingly.
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David May | 27 May 2010 5:28 pm
For 'clears up confusion' read changes its mind over an unfair and impractical rule.
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