FSA to launch consultation on RDR legacy business
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The FSA is launching a two-month consultation into the treatment of legacy assets later this year.
The regulator sent a letter to trade bodies in March which clarified that legacy commission will be banned under the RDR, although trail commission brokered before 2013 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. The FSA announced its ban on legacy commission in its policy statement on the distribution of retail investments in March 2010.
The industry has been in talks with the FSA for several months about how it will treat legacy business under the RDR.
At a Money Marketing roundtable in June, Fidelity International head of UK fund partners Ed Dymott said the treatment of legacy business after 2012 was the RDR “elephant in the room”.
Last month Skandia called for a ‘sunset clause’ on legacy commission which would allow advisers to continue to receive legacy commission for five years, at which point the legacy commission would cease.
The FSA declined to comment.
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Readers' comments (4)
huw | 2 Aug 2011 2:10 pm
Does anybody have any idea what fund based income is classed as? What happens when a client adds to an investment that has commission built into the charging structure after 2013? Will the charges be modified by some unknown process to reflect the fact that the client is having to pay a fee to carry out that work? Or does the provider trouser the money and leave the client to be double charged? Or does a new RDR compliant contract have to be created also incurring extra cost for the client?
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Anonymous | 2 Aug 2011 3:10 pm
Don't ask the FSA - RDR is an exercise in making it up as you go along, continually changing the goalposts and resisting change when unintended consequences come to light.
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Julian Stevens | 3 Aug 2011 10:13 am
It's not hard to see this requirement for providers to change their systems to remove all commission payments i.r.o. future top-ups to existing products causing huge problems and expense. These will be particularly onerous at a time when providers' profit margains are already under severe pressure and business levels are generally depressed. But, to the FSA, none of this matters. The Grand Plan is irrevocably underway and bugger the costs (originally 'estimated' at £600m but now between £1.4 and £1.7Bn), everyone else will just have to get with the programme or............what? Cease trading?
Yes, one can understand the FSA wanting to remove the temptation for intermediaries to direct additional client money into commission-paying products to avoid the possible inconvenience of having to negotiate an adviser charge after the end of 2012. But what the FSA is demanding is rather like stipulating that London Transport must revamp the entire underground rail system to run on a different voltage as of 1st January 2013. The logistical challenges are colossal. But, like I say, to the FSA none of this matters. By hook or by crook, as of January 2013 the financial services world will have had to have transformed itself to conform with the Perfect New World envisaged in the RDR and if a few tens of thousands more IFA's quit the business and if a few more providers throw in the towel and close their doors to further business, well, that'll just be the 'acceptable' price of progress. The trouble is, of course, that the collateral damage may be very nearly as great as the benefits that the FSA is hoping to achieve with its RDR. Ah, but the pain will be worth the gain, says the FSA. I wonder.
And we all know how this 'consultation' exercise will work. All the feedback received will be kept firmly hidden from public view so there'll be no opportunity for discussion and debate. The FSA will simply claim to have "taken it on board" and plough ahead regardless with its predetermined agenda. It'll be just a hollow, token sham, like all those before it.
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Robert Hamshare | 12 Aug 2011 4:28 pm
Who are the faceless bureaucrats at the FSA and how do they determine policy: We only see Hector Pants; It is time that like Parliment the FSA committees and decisons are broadcast so that everyone can see how things are decided and what evidence is used to decide them!!!
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