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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)

  • To ALL

    I wonder how some of the contributors to this debate have the audacity to call themselves professional. The standard of spelling and grammar is appalling which does beg the question what is the standard of advice, in addition their written communication with clients must be laughable and littered with basic errors undermining whatever work they have done. The childish arguments show a lack of real skill to debate rationally with insults and anger abound to compensate for this shortfall. No wonder there is a fear of Level 4 Qualifications I think some have proven beyond doubt they probably can’t even spell it, let alone pass it.

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  • I completely agree with Bob Donaldson.
    We get thousands of pieces of copy correspondence for inactive policyholders on plans arranged many years ago which we must file and keep but who won't pay fees. It would be fine if, and this is a gigantic if, the insurance companies made ALL correspondence on all plans available on line and didn't send out these mountains of paper, which cost them less to generate than it costs us to scan and file.
    Why does the FSA think WE should pay for this administrative burden? THEY are retrospectively changing the policy terms.
    If there is anyone at the FSA with an ounce (or should that be gram?) of intelligence could they please crawl out from under their stone and explain it to their mentally challenged colleagues that in the real world you have to start from where you are with legacy products.
    If the FSA wants to start the “churn to end all churns” they seem to have picked upon the perfect excuse. Who thinks they won't blame this total lack of foresight on someone whose initials are HS....?

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  • Why is it that the fsa want to drive down earnings for IFAs whilst at the same time increase their own insatiable coffers?
    If they continue to demand more and more whilst expecting IFAs to survive on less and less, somewhere along the line the pressure valve will blow.
    The fsa may be unaccountable but they had better be careful,if the powers that be will not control them, a rebel uprising against this form of oppression may just materialise.
    What they propose is nothing less than state interference in private enterprise, a very slippery slope and one they may live to regret.

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  • Is this some sort of April Fool's joke?

    If not, the joke is on us and the consumer. e'll have less money to pay our FSA fees and the customer will not benefit as the life offices will simply keep the renewal commission.

    In any event, I thought that the FSA had previously decided that commission can still be paid under pure protection'.

    In regard to trail from investment business, the FSA has said that pre-RDR trail commission can still be paid post-RDR. I hope I'm right in thinking that pre-RDR-trail (otherwise known as renewal) commission on pre-RDR protection business can still be paid post-RDR.

    Again, previous contributors have asked "what about commission generated by contractual indexation of policies" is the FSA proposing that the life offices simply keep the commission that
    would otherwise be payable to the IFA?

    It really would appear to be the case that the FSA wants to exterminate (I'm afraid it really does feel like that to me) IFAs and leave the public to the tender mercies of the Bancassurers.

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  • @Stu W

    Whilst you may be able to spell, your standard of punctuation is a different matter.

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  • Have any of you actually seen this document, or read it?

    1. Trail commission is safe post 2012 on products sold before 1/1/2013.
    2. Contractual increments and increases (and related commissions) are safe post 2012 on products sold before 1/1/2013
    3. Top-ups post 2012 will not be able to pay commission (legacy commission).


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  • Lets face it initial commission and trail is why Equitable life went bump!!!! It has to be the route to all evil as all failings in history were down to that. Nothing to do with lack of regulation or crooked individuals!!!! Don't have a problem with RDR, transparency & choice. Shame every time someone phones me I will have to send an invoice including admin time. Clients going to love that one!

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  • The FSA must be discussing these areas with companies that already have millions in trails and renewals already. Surely it's about time they listen to us, read the blogs and get some common sense. David Cameron has expressed his desire to encourage entreprenuers to help the economy recover. This is while the FSA is allowed to dump thousands of advisers and associated workers on the scrapheap. It's time the thousands of us started an industry protest!

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  • I might have missed the point here but I thought commission was only being abolished on investment contracts. This would leave all FIB, PHI etc indexation commissions intact.
    I think that what will be stopped is full commissions payable on (mostly) pensions whenever there is an annual indexation-This strikes me as being far more positive than previous posters seem to think. Thats if Ive got it right. I look forwards to other thoughts.

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  • Surely the account/policyholder has the right to choose who receives any trail commission etc.

    Transfer of servicing rights could easily include confirmation that the client wants any ongoing commission is to be paid to the new adviser.....

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