Experts have urged advisers to act now to future proof their business to guard against the end of trail commission.
Speaking at a panel debate in London last week, hosted by Panacea Adviser and New Model Business Academy, Apfa director general Chris Hannant said advisers have “a window of opportunity” in the next two years to move clients who are serviced through platforms to fee-based charging. All legacy payments between fund managers and platforms will be banned from April 2016.
He said: “There is an opportunity to focus on that and protect your business rather than obsessing about all trail commission being banned.”
But while Hannant emphasised the FCA has no current proposals to ban trail outright, when pressed he agreed with other panellists that all trail commission will eventually end.
He said: “If you are receiving trail payments without an ongoing relationship with your client, that is a very vulnerable funding stream.
“Advisers should be looking to secure their revenue and any trail commission, even with an active client, is not particularly secure.”
Personal Finance Society chief executive Keith Richards argued switching clients from trail commission to adviser charging can be difficult. He said: “Not all trail relates to an ongoing service and that is where we have a problem. It is wholly wrong, where trail was part of the initial commission, for anyone to take that away.
“In that situation if the client needs an ongoing service, the adviser has no option but to do it for free or to charge them, and that risks consumer detriment by charging them twice.”
Richards added “there is a growing suspicion among advisers” that providers are looking to switching off trail at the earliest opportunity.
But Richards said: “The provider has a duty of care to the client and we should not assume they have a vested interest in keeping the commission.”
Panacea Adviser chief executive Derek Bradley argued switching off trail could create servicing problems for providers. Bradley said: “The nightmare scenario for providers which have relied on intermediated distribution is there is no longer a servicing adviser.
“If customers have queries the provider will be the first to be hit with requests for advice.”
Ascentric sales and marketing director Mike Morrow said: “The dilemma comes where products cannot easily be switched from trail to ongoing charging because the client would be exposed to tax or charges.
“And that is where providers ought to be stepping in and providing a service to the client or rebating the trail to them, to justify having that extra 0.5 per cent on their balance sheet.”
Panellists also warned the switching off of trail could prove disastrous for firms which have acquired adviser businesses based on the value of their trail commission.
Bradley said: “Where an IFA business has been sold and the payment is due to be made over several years, the buyer may no longer be able to pay the seller if trail is cut off and that is serious.
“Firms which have acquired a number of businesses may find themselves in difficulty – there is the potential for firm failures.”
Former IFA Association director general Garry Heath said the FCA has “legalised theft” in allowing providers to switch off trail.
He urged advisers to make stronger representation to the regulator to prevent the ending of all trail, saying: “The regulator is going to try to do this because there is no one in a position to stop it.”