Skandia hits out at legacy commission ban
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Skandia has criticised the FSA over its decision to ban legacy commission under the RDR, arguing the cost benefit analysis supporting the move is “fundamentally flawed”.
Skandia UK chief executive Peter Mann (pictured) says yesterday’s consultation paper on the treatment of legacy assets was the first paper to clearly set out the regulator’s thinking on this issue, but has been framed as if the ban on legacy is a done deal.
Yesterday’s consultation paper included a cost benefit analysis with no actual cost figures, only stating that “we do not consider that the proposed guidance would give rise to incremental costs for firms”.
The FSA says costs of changing provider systems to cope with the ban on legacy commission were included in earlier adviser charging papers.
But Mann says: “The cost benefit analysis used to inform the proposal to ban legacy commission is fundamentally flawed because the original consultation to which product providers responded did not propose a ban on legacy commission.”
Mann argues the RDR consultation paper and resulting policy statement published in March 2010 gave providers the impression it would remain possible to pay commission where a product is ‘amended or extended under options available to the customer’.
He says firms’ responses to the consultation reflected this understanding, and so the significant cost implications and adverse customer outcomes of the ban were not made clear to the FSA at the time.
Mann adds: “This is the first FSA consultation paper to clearly outline FSA’s policy thinking on legacy commission so it is disappointing to see that the FSA seems to be consulting on how to implement the ban rather than the ban itself.
“An outright ban on legacy commission is not in the best interests of a large number of customers. It will force the hand of product providers who do not have time or resources available to adapt their systems in time for the RDR implementation date.”
Mann says forced RDR implementation as a result of the legacy commission ban is likely to result in products being closed to new business and customers losing valuable benefits attached to old products.
Skandia has previously called for the introduction of a five year ‘sunset clause’ allowing legacy commission to be phased out over time and give providers adequate time to make the necessary system changes.
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Readers' comments (2)
Anonymous | 19 Nov 2011 12:14 pm
Everything about RDR is a mess with high numbers of well established and qualified IFA's throwing in the towel with increased regulatory costs and ever reducing income streams.
From the clients perspective, they will lose valuable advice or pay an additional fee AND have the existing charges levied.
Why don't the FSA say that any form of investment is an unsuitable risk for 95% of the population and can seriously damage your wealth......similar to the warnings on tobacco products. sound daft but not as daft as 90% of the thousands of pages of junk they publish.
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Ned Naylor | 21 Nov 2011 10:30 am
Skandi thinks the legacy ban is flawed.
Oh! Now the firms and providers are beggining to see the light and kicking up about it.
Stable door bolted after the horse has left.
Too little objection, Too damn late
The providers and major networks should have stood up to the regulator and said NO, we are not going to do this
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