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FSA clarifies that legacy commission is to be axed

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The FSA has written to trade bodies to clarify that legacy commission will be banned under the RDR.

In a letter sent this week, the regulator also confirmed that trail commission will be allowed to continue, provided that a contract and advice is given before the RDR deadline on December 31, 2012.

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.

Forty Two Wealth Management partner Alan Dick says: “What the FSA is trying to do here is ensure that advisers receiving commission are actually providing a service that has been agreed with the client, which is absolutely fair.”

But Adviser Alliance founder and director Alan Lakey says: “The regulator cannot see that most advisers deal with ordinary people who are not comfortable paying fees. These people prefer to work on a commission basis.”

An FSA spokeswoman says: “We keep up dialogue regarding RDR. In the case of legacy commission, the FSA has reiterated that this commission will be banned after December 2012.”

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Readers' comments (56)

  • What happens to monthly ISAs that role over? Do IFAs still receive the commission based on the original advice?

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  • There will be poor wee orphans everywhere.
    Never mind, maybe the banks will take them in.
    Failing that, the fsa can always up our fees so they can get "money guidance"
    The big companies are in for a windfall.
    Why not do us all a favour and someone somewhere ban the fsa after 2012. Now that would be a result.

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  • Hi Ed, Do you remember speaking to me after your act at the comedy store last week.

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  • Ed Stapleton | 31 Mar 2011 10:31 am

    Ed, I do not mind you expressing a view but I do object to sweeping statements such as 'clean up this industry which is long overdue' The majority of people in this industry are of integrity and are valued by their clients. I sincerely hope you are not expressing a view held by your clients when you make such a statement.

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  • So - lets say that we have an index linked policy and we are both advising on the cover on an annual basis and we are receiving commission on the incremental increases.

    The FSA have baneed that commission ??

    That is interference with an existing contract - I would be interested in a lawyers comments.

    So commission is to be replaced by fees or customer agreed remunaration - it will be interesting to see how many (if any) insurance companies seek to support the IFA by finding a way of concverting incremental commission to customer agreed remuneration.

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  • Never mind adviser commission payments.

    Are the FSA not aware of the bonuses (another word for commission me thinks) some of the provider consultants are earning?

    They get a lot more bonus than I get commission from the hard work I do I can tell you. And without the risks.

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  • This is excellent news! All we need to do is built in 20% extra cover for inflation over 4 years (keeps the clients and the FSA happy) wait until the end of any clawback period (say 4 years for example) then rebroke everything in sight and get more money from the client.

    Has anyone at the FSA even thought that this might actually be costing the clients money year on year? Don't think so.

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  • I agree with the principle that I believe is the inspiration behind this FSA rule: TCF. So, it makes sense and is right.

    Does anyone know how the FSA or providers paying such commission will prove what service is being delivered to any clients with contracts paying the type of commission which is classified as Legacy?

    Are there clear criteria about what is defined as satisfactory service?

    Are there to be rules in place for providers to treat fairly the adviser community who genuiely comply or will the advisers find themselves spending money in time fighting the providers to be fair when they stop paying commission attaching to the relevant contracts?

    If anyone knows the answers or where I can get them please tell me.

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  • It is costing the client more and more each year already and when VAT is applied it will cost them 20% more.

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  • Indexation commission is a contractual obligation between the advising firm and the life company. If it is axed, the only beneficiary is the life office ! I would debate whether the FSA can actually terminate (or amend) a commercial contract in this way. The adviser would have taken into account the prospect of legacy commission when deciding the fee/commission payable at outset - and such commission also provides a small return for servicing the policy (answering future questions and encouraging the client to maintain it in force).

    It is difficult to understand the process by which this moronic regulator comes to make its edicts. Especially when almost everything it does 'flies in the face' of improving the situation for consumers.

    I have no problem with imposing examinations in the hope of driving up standards of advice but everything else is almost certainly going to drive up costs for consumers who can afford to pay for advice and cut off millions from advice other than that which will be provided by banks.

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