Legacy commission ban could create new biases
Share
Advisers have questioned whether the FSA’s ban on legacy commission under the retail distribution review will address market bias.
The consultation on treatment of legacy assets reiterates that trail commission for ongoing advice will continue after the RDR but legacy commission for changes to existing investments will be banned.
The regulator argues that allowing legacy commission to continue “could perpetuate bias in the market”, with advisers having a vested interest in encouraging clients to hold legacy products or increase payments into them.
Fowler Drew investment director Stuart Fowler says: “It is difficult to show evidence the impact of running parallel systems with commission continuing only in certain circumstances. The FSA believes there is significant commission bias but there will be new biases created by the very fact you have this distinction between new advised sales and refreshed old advised sales.”
Evolve Financial Planning director Jason Witcombe says the ban will address bias among those advisers that are more motivated by commission but he adds: “I have a lot of sympathy with insurance companies that are often an amalgamation of other insurance companies with difficult legacy systems.
“The last thing we want is clients topping up a pre-RDR product where the commission remains priced in, then paying adviser charges on top. The only winner there is the insurance company. We have to start with the end-customer in mind.”
If you enjoyed this article, sign up here to receive daily email updates from Money Marketing and Follow @_moneymarketing
Readers' comments (6)
john | 25 Nov 2011 10:16 am
anyone who thinks an insurer is a winner out of all of this needs to see a shrink and buy a calculator. Clients lose and insurers lose
Unsuitable or offensive? Report this comment
richard Wright | 25 Nov 2011 10:50 am
RDR needs to be delayed. Taking away a large percentage of my business ive worked so hard to build over 27 years is a disgrace.
Please sign the on line petition ASAP,we need 100000 signatures, 30000 IFAs and a few clients each will do it, heres the link.
http://epetitions.direct.gov.uk/petitions/15569
By the way, ive studied hard and took my exam on , its NOT just about exams!!!!!
Unsuitable or offensive? Report this comment
Ned Naylor | 25 Nov 2011 12:10 pm
To Richard Wright
Hear Hear, petition signed, just hope all the other whingers who do nothing get onboard.
if you have been an IFA for 27 yrs, I would personally think that selling up would be a better option than seeing your firm go down the drain when the legacy commission is also eventually banned.
Then you will be a free man.
My network LJ FInancial Planning Ltd may be interested.
Unsuitable or offensive? Report this comment
Anonymous | 25 Nov 2011 1:13 pm
Commision Bias should be the simplest and easiest thing for the FSA to stamp out - all they need to do is use the RMAR / GABRIEL data that all fims submit.
The fact that commision bias exists prooves that the FSA cannot be bothered to do what they are paid to do - REGULATE.
FSA - please just do your job and stop changing everything because you canot be bothered to do what you are paid to do. What you do is not that complicated!
Unsuitable or offensive? Report this comment
Phil Castle | 25 Nov 2011 1:55 pm
@ Anonymous | 25 Nov 2011 1:13 pm
The FSAs own commissioned research concluded THERE IS NO SIGNIFICANT COMMISSION BIAS. That is not to say there are not some miscreants, just that it is not common.
The FSAs answer is that there is a consuemr PERCEPTION of BIAS and therefore they conclude the best solution is to throw the baby out with the bathwater.
For the record, we already work an adviser charging model and will have no problem post RDR with commission being banned for new business, but if the RDR results in too many IFAs leaving the industry it will create mayhem.
Like Ned says, if you have had enough of the industry speak to someone who is staying who is of like minds (Us for example) as we would like people to retire gracefully, supporting their former clients emotionally with the transition to a new adviser.
We're interested in anyone with a CT postcode, although we do have clients nationally (and internationally).
Unsuitable or offensive? Report this comment
Anonymous | 30 Nov 2011 10:47 am
No ongoing commissions for legacy products post RDR- what a nonsense. Let's just become like tied advisers in high street banks then- wack the clients monies in an investment & walk away. Forget re-balancing or managing client monies! For the less scrupulous IFA isn't this an incentive to (1) Neglect client funds to retain trail or (2) Churn to generate new fees post RDR?! Not very well though out.
Unsuitable or offensive? Report this comment