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Categories:Regulation

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)

  • Those who doubt the willingness of providers to ignore contractual increment commission should look no further than Standard Life and the brutal murder of personal pensions in 2000. No indexation commission quotes were honoured.

    I am very worried by this sudden mention of "legacy" commission. What is it? Could someone please define the term?

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  • to Anonymous @ 12.04pm:

    " cut off millions from advice other than that which will be provided by banks."

    That says it all, doesn't it?

    Funnily enough the client gains NOTHING from making this change, the insurance company just make more profit.

    Completely in character for this regulator: benefit the banks and big insurance companies. A reverse Robin Hood.

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  • When I purchased a client-bank a few years ago I did so on the basis of a multiple of recurring income. The recurring income was made up of indexation commission, renewal commission and fund based trail. Now am I to understand that I will no longer be entitled to that income that I have paid for in good faith without getting every client to agree to a fee of the same amount paid for via offset? So much for less red tape for small businesses!

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  • Some of you lot are from a comedy club for sure!

    From what I see, the FSA has said the ban is for products AFTER RDR. This means that if a pre-rdr product agreed to pay increasing commission based on alterations, then that should continue.

    Post RDR there will either be no commission or commission for insurance products. In the case of the former, the premiums may be cheaper.

    So you set up a life policy for a client....a few years later they need different cover....so you advise them to get another one. How much of that will be covered by renewal commission?

    As Ed said, I get the feeling most are beginning to just think "here we go, all those renewals are under threat"

    Of course most clients won't pay for protection advice - thats cos they don't really need complex advice. If they need a life policy, yes it has to be sold, but they can buy it online cheaply. I see no "value add" there....so most of this is a waste of time.

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  • Here we go again.

    Do advisers really object to not being paid in these circumstances?

    And really think the status quo has worked for years?

    Unbelievable.

    I welcome any rule change which leads to the removal of legacy commission - absolutely right.

    Presumably those whingeing are those who who think it's OK to be paid for a service they don't actually provide????

    Remarkable.

    Of course the providers shouldn't pocket the money either.

    The legacy commission should be paid to new adviser, which the FSA don;t seem to have a problem with or should be reinvested for client's benefit.

    How can anyone possibly object to its removal from the hands of previous advisers?

    Ian Coley
    Partner
    Medical Investment Services

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  • to: Ian Coley.

    Call me cynical, but I suspect that if something doesn't get paid that was *going* to be paid, this money will not go to the client.

    The fair way would be to pay the funds into the client plan and let the adviser take this as a fee if agreed.

    What will happen in real life? Any funds that would have gone to an adviser (rightly or wrongly) will be kept by the insurance company. Everyone wins. Except for the adviser and, more importantly, the client.

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  • To Ed, i think you should find work in another area! maybe with the FSA , Its people like you that have put IFAs in the rediculous position we all find ourselves in.

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  • Harry, "Of course most clients won't pay for protection advice - thats cos they don't really need complex advice. If they need a life policy, yes it has to be sold, but they can buy it online cheaply. I see no "value add" there....so most of this is a waste of time."

    I forgot that clients are fully aware of IHT limits, how it all works and they all know how trusts work and when they buy the policy everything is all fine so why do we need advisors? I know this is not the main talk on these comments but that comment did astound me!

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  • What impact will this have on practice buyouts, partly based on the trail that the FSA now wants to ban? Just when you thought it couldn't get any worse the FSA comes back for more. I fear we are witnessing the extinction through over regulation of the UK financial services industry.

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  • Gold old Harry supporting thev IFA once again! If you like them that much go and get a job with them.

    The FSA are out for themselves.

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