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Trade bodies unite to tackle legacy commission issue

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Adviser and provider trade bodies are working together to address the FSA’s concerns over legacy commission.

Money Marketing understands Aifa, the Association of British Insurers and the Investment Management Association are working on a combined solution to be put to the FSA as part of its legacy commission consultation. The regulator sent a letter to trade bodies in March to clarify that legacy commission will be banned under the retail distribution review, although trail commission brokered before 2013 can 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 but there is still a lack of clarity over the definition.

The industry has called on the FSA to provide clarity on the treatment of legacy business after the RDR and specific rules about what the regulator deems to be new business.

Aifa policy director Andrew Strange says: “Legacy remains one of the parts of the RDR implementation that causes us concern. Like many policy issues, we are working across the industry to come up with a solution that works for all parties.”

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Readers' comments (3)

  • "still a lack of clarity"

    Undersatement of the week.

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  • Confused?
    You will be!

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  • So what exactly are the FSA's concerns? That intermediaries will be tempted by the commission available to encourage the topping up of an existing contract instead of advising the client to invest in a new one? What is the scale of this possible risk of consumer detriment? What research has the FSA done and what data has been gathered as a result? May we see it? May we discuss it? May we set it in context appropriate to the degree of possible consumer detriment?

    Assuming that most clients would not wish to make further investments into a product unless it has served them well to date, is it a major issue? Or is it just a minor molehill out of which the FSA is determined to make a mountain?

    Is the best way to address this perceived risk the imposition of a total ban on commission payaments from existing products, with all the expensive and complicated systems changes this will impose on providers? No, of course it isn't.

    Is there a simpler and easier solution? Almost certainly. Just require providers to rebate directly to clients any commission over and above whatever amount is agreed between the adviser and his client ~ HIS client. Not the FSA's client, not the provider's client, but the adviser's client, a relationship into which the FSA seems more than ever determined to stick its unwelcome oar and create needless trouble and expense for all concerned.

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