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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)

  • to Al lover | 31 Mar 2011 1:34 pm

    Yeah thats right its all my fault the rules are changing and instead of accepting the fact - BECAUSE IT WILL HAPPEN - blame anyone, everyone, anything. The brave will survive the clever will find their niche, the moaners will get what they deserve nothing.

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  • anon !! You must be new to the business and call yourself a Wealth Adviser !! is that IFA ? is that someone who does'nt sell term assurance and advise on trusts nor advise thier clients on one of the lagest financial commitments in the lives (no i dont mean a bugatti) I mean thier mortgage., or is that stuff all to below you guys? perhaps you decribe moaners as the people who are tired of endless and tireless regulation and rules that have led us all to the end who prefer to make comment rather than take all the rubbish that you seem prepared to take. you should apply to the FSA for next role !

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  • Matt - point taken, but lets look at it this way:

    Client goes online and buys a live policy above NRB and doesn't place it in trust.

    On death it still pays out. That's more money than what they would have got had they not done anything. So, lets say they buy a policy above the NRB and there's some IHT to pay....they still have some money! If if the IHT liability was high (with 2 x NRB) I think most would have actually sought advice regarding a trust anyway.

    So lets not go there shall we?
    My point still stands - this is not complex advice and I don't see why people should have to pay for ongoing servicing of an existing insurance policy.

    Pissed off IFA - no surprise to see you still learning to write then! 11 plus sitting recently?

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  • Pissed Off IFA | 31 Mar 2011 2:09 pm

    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.

    -------------------------------------------------------------------------

    And IFAs aren't?

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  • Two years ago I asked the FSA where I stood with regard to GARs post 2012 i.e. with existing PPP, S226, S32 etc where the internal annuity rate favours the client and comission was costed at outset. The reply was worrying in that it had never been considered relevent.

    I have a bunch of lovingly tended dinosaur pensions whose maturities I have looked forward to with pleasurable anticipation. A recent example was a Scot Mut S32 with 15% pay rate, 66% spouses pension, 3% indexation AND 2% COMMISSION.

    Given the many years of nurture I have given to my charges why should I be denied the graduation party?

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  • Hey anonymous, was Ian on at the comedy store on the same night?

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  • Come on lads.
    Enough is enough.
    How much more can we take?
    The time has come to form a rebel army and march against the dictators in Tripoli Wharf.
    Has anyone got Obama's 'phone number?

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  • It wasn't just Standard Life that shafted us as of 6th April 2001 on all the PP's we'd written with them throughout the previous decade ~ Norwich Union, CU, GA, Friends' Prov, Clerical Medical and probably all the others did the same, as a result of which we've transacted no business with any of them since. Our stock response to calls from their rep's seeking to court business has been "If and only when you've restored the original commission terms on all the contracts we wrote with you pre-April 2001, we may have something to talk about. Until then, forget it." And that's the last you ever hear from any of them.

    I have no crystal ball to tell me what the future may bring ~ the FSA seems to have an inexhaustible store of imaginatively meddlesome and unhelpful ideas to make life more difficult for all of us. But I identified straight away that CAR-based contracts are the way forward, under which the remuneration, both initial and ongoing, to be paid to the adviser is a matter of written agreement between the client and the adviser as opposed to being controlled by the provider and vulnerable to subsequent unilateral (always downward) modification. Okay, you have to give up indemnified payment for your work but, if you're in business for the long term, this is a better remuneration model, giving you smoother and stronger cashflow and no clawbacks (which were never pro-rata anyway). I find it difficult to understand why so much entrenched resistance to making this transition remains. Certainly, once we embarked on it nearly ten years ago, I found it surprisingly easier than I'd anticipated.

    But taking on legacy business and, for so doing, receiving no payment for it in accordance with the terms on which the contract was originally written, just because of some unthought-through edict from the FSA, is almost certainly going to be extremely unhelpful to everyone except the providers. Will the terms on which any incremental business is accepted be more favourable for the client to reflect the absence of commission? Given the problems that nearly all providers (all the traditional ones, anyway) seem to have updating their systems in respect of old contracts, I'd think it very unlikely. So the client will have to pay fees that he probably won't want to and the provider will keep the commission that would otherwise have been payable.

    From the Statutory Code of Practice For Regulators: "Effective and well-targeted regulation is essential in promoting fairness and protection from harm. However, the Government believes that, in achieving these and other legitimate objectives, regulation and its enforcement should be proportionate and flexible enough to allow or even encourage economic progress."

    Banning commission after 2012 on increments to legacy contracts hardly seems to accord with the above ~ in fact, quite the opposite. But then, having granted itself a unilateral opt-out, since when did anything the FSA do reflect anything in the Code?

    Unsuitable or offensive? Report this comment

  • It wasn't just Standard Life that shafted us as of 6th April 2001 on all the PP's we'd written with them throughout the previous decade ~ Norwich Union, CU, GA, Friends' Prov, Clerical Medical and probably all the others did the same, as a result of which we've transacted no business with any of them since. Our stock response to calls from their rep's seeking to court business has been "If and only when you've restored the original commission terms on all the contracts we wrote with you pre-April 2001, we may have something to talk about. Until then, forget it." And that's the last you ever hear from any of them.

    I have no crystal ball to tell me what the future may bring ~ the FSA seems to have an inexhaustible store of imaginatively meddlesome and unhelpful ideas to make life more difficult for all of us. But I identified straight away that CAR-based contracts are the way forward, under which the remuneration, both initial and ongoing, to be paid to the adviser is a matter of written agreement between the client and the adviser as opposed to being controlled by the provider and vulnerable to subsequent unilateral (always downward) modification. Okay, you have to give up indemnified payment for your work but, if you're in business for the long term, this is a better remuneration model, giving you smoother and stronger cashflow and no clawbacks (which were never pro-rata anyway). I find it difficult to understand why so much entrenched resistance to making this transition remains. Certainly, once we embarked on it nearly ten years ago, I found it surprisingly easier than I'd anticipated.

    But taking on legacy business and, for so doing, receiving no payment for it in accordance with the terms on which the contract was originally written, just because of some unthought-through edict from the FSA, is almost certainly going to be extremely unhelpful to everyone except the providers. Will the terms on which any incremental business is accepted be more favourable for the client to reflect the absence of commission? Given the problems that nearly all providers (all the traditional ones, anyway) seem to have updating their systems in respect of old contracts, I'd think it very unlikely. So the client will have to pay fees that he probably won't want to and the provider will keep the commission that would otherwise have been payable.

    From the Statutory Code of Practice For Regulators: "Effective and well-targeted regulation is essential in promoting fairness and protection from harm. However, the Government believes that, in achieving these and other legitimate objectives, regulation and its enforcement should be proportionate and flexible enough to allow or even encourage economic progress."

    Banning commission after 2012 on increments to legacy contracts hardly seems to accord with the above ~ in fact, quite the opposite. But then, having granted itself a unilateral opt-out, since when did anything the FSA do reflect anything in the Code?

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  • no money. no service. simples.

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