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11 months to go and still confusion over trail

It is pretty shambolic that with 11 months to go until the introduction of the retail distribution review the industry is still calling for clarity on the future of trail commission.

Reading a number of responses to the FSA’s recent legacy commission consultation paper, trade bodies still have concerns about the future of such a fundamental part of many firms’ income streams. In this week’s Money Marketing, Aifa director general Stephen Gay warns the FSA’s stance on trail commission is still open to interpretation and has called for the issue to be “clarified beyond any doubt”.

Throughout the RDR, the FSA has pledged that trail commission from pre-2013 business can continue to be paid and included this point in its final rules published late last year. This was based on concern about the effect retrospectively tampering with trail would have on the IFA industry and the legality of any such move.

However, the wording of the FSA’s legacy consultation paper has led to worries that giving any kind of advice to a client would lead to all trail being turned off. The paper states that trail can continue if it is “payable for advice provided pre-RDR”. Aegon and others have pointed out that this can be interpreted as meaning that if any post-RDR advice is given all trail must cease. 

Aifa has called for clarity  on what constitutes the “termination” of a product for the purposes of trail commission while various providers and advisers are unclear whether fund switches, or switches within packaged products, would end the trail agreement.

Many advisers have built up their firms on the recurring income received from trail and have made assumptions on the future of their businesses on the basis of the FSA allowing trail to continue.

The RDR will herald a more transparent way of charging but it was never agreed that this charging model would apply retrospectively for very good reasons.

In its haste to meet its arbitrary RDR deadline, the FSA has already refused to revisit its cost benefit analysis on the effect of the legacy commission ban on providers, despite most providers basing their original feedback on costs to the regulator on completely different assumptions to the final rules.

The costs and benefits associated with the RDR have been developed under the assumption that trail commission will remain for pre-RDR business. Any radical deviation from this agreement from the regulator should require a proper cost benefit analysis and consultation.

With the RDR clock ticking, the FSA must make its intentions clear as soon as possible.

Paul McMillan is the editor of Money Marketing- follow him on twitter here


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There are 5 comments at the moment, we would love to hear your opinion too.

  1. I told the regulator that the more I look at this the bigger the pickle we will end up in.


  2. Anyone in their right mind will have now lined up alternative income streams to retail investment advice. There is no clarity, so no serious business planning can be done and therefore no guarantee of a viable future business model. Plan B required urgently by all sane parties who don’t already have one.

  3. We’re all doomed. Get out now.

  4. Finally, somebody talking sense!! I agree with Tricia, we are all doomed.

    The FSA will not stop trying to drive us out of business so that ALL financial advice will be given by the Banks.

  5. As a product provider; it is not just unclear it is contradictory, on one hand we know that a customer can transfer adviser and the trail will flow to the new adviser, er.. right up to the point that new adviser suggests a switch and the trail ceases.

    We also want to know what happens to non advised increments, are we allowed to pay more than 100% allocations? We think pocketing the commission and paying 100% or less is not TCF, so whats it to be.

    Come on FSA! this is basic stuff we already had asked about but was not clarified at all in January. We have to make system changes involving external suppliers, time is running out and costs are rising.

    Bear in mind some trail commission function starts computing 12 months in advance and we are already inside that window.

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