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Aegon: Our solution to trail confusion

Aegon’s response to the FSA legacy assets consultation paper actually focuses less on legacy commission and more on trail. The ban on legacy commission means the FSA will not allow additional commission on advised top-ups to pre-retail distribution review products, creating consumer detriment for many existing customers – and complications and costs for advisers and providers. But things could get much worse.

The paper says trail commission can continue if it is “payable for advice provided pre-RDR”. This can be interpreted as meaning it has to go if it is paying for post-RDR advice. But how often will what it is paying for be properly documented? And legally, commission is a provider/adviser agreement with no link to any adviser/ customer service.

If the FSA goes with this interpretation, advisers could lose future trail commission if, for example, they advise on a fund switch within a bond or pension. This, coupled with the legacy ban, takes us way beyond anything originally envisaged within the RDR.

This interpretation also conflicts with Conduct of Business Sourcebook rules published in November 2011 that allow trail commission to continue if the customer changes adviser, provided there is an ongoing service. This does not fit with having to switch off trail if post-RDR services are provided.

Aegon’s biggest concern is that switching off trail would discourage existing customers from seeking advice. Such customers often receive ongoing advice for no extra charge, funded by previously agreed trail commission.

Advisers who have built a model around an ongoing flow of trail commission to fund ongoing client services will take a financial hit and providers will face another implementation challenge.

These issues would go away if the FSA extended its definition of trail to “any ongoing commission payable in respect of a pre-RDR investment that is not being increased as a result of post-RDR advice” and allowed this to continue.

Others have raised concerns over future differences in the treatment between bonds and collectives – moving between collectives represents a new post-RDR contract and requires a move to adviser charging. But bonds and collectives have always been different.

Existing bond customers can switch between funds within the same product and many are receiving ongoing advice on this, funded by trail, at no extra cost. Who benefits from separate payment?

Aegon supports the RDR and adviser charging for new business but imposing elements of this into existing adviser/client relationships will create detriment for customers, advisers and providers. Banning trail on post-RDR advice would need a proper cost-benefit analysis and certainly should not be considered for end-2012.

We hope the FSA concludes that for many existing customers, trail commission helps deliver the good customer outcomes the RDR was designed to deliver.

Steven Cameron is head of regulatory strategy at Aegon


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There are 10 comments at the moment, we would love to hear your opinion too.

  1. A proper cost-benefit analysis? From the FSA? April Fools’ Day has come early this year.

  2. Now is the time for all good CEOs to come to the aid of the IFA service community and tell the government that they are NOT GOING DOWN THAT ROUTE AND WILL CLOSE THEIR COMPANIES DOWN BECAUSE IT WILL MAKE THEM UNVIABLE AND INSOLVENT!


    Said it!

    CEOs of Life offices take note, YOUR jobs are under threat. We can always charge a fee for “advice” and tell clients to do nothing, change nothing and put up with what will be declining services from providers.

  3. Ned makes an excellent point. I simply don’t understand why life companies have not stood together under the ABI and refused to co-operate with the FSA.

    The FSA cannot fine and de-regulate them all and the consequences to the economy of doing so would be huge.

    If the big players work together we could rescue this industry from the FSA. Interestingly as Ned notes, these firms have the most to lose from RDR and I don’t think they have realised that yet.

    IFA’s will continue but I doubt their advice is going to include poor quality, poorly serviced insurance company products.

    Wraps are the i-tunes to Aegon and co’s HMV.

  4. I have personally put Mowlgi on the the job to find the trail to my missing commission

  5. Good shout Chippy! Whatever impact all of this has on the IFA market the negative impact on the life and pensions sector will be far greater.

    Those IFAs who retain decent client relationships will simply move the assets out of inflexible, constrained legacy products and move on, leaving life company embedded values (and stock prices) to haemorrhage.

    I guess that’s what happens when you exploit people for decades.

  6. Surely telling a client that you now charge a fund-based fee post ‘changing something’ deducting the new fee from the invested assets in the same way as trail would keep the FSA happy? Incidentally would
    It be such a sin to maintain trail post RDR and explain to a client (who should know anyway) that the fund based trail pays for an IFA’s time.
    Isnt that service based transparent model what the regulator and the client both want?
    I agree the FSA have made a mess of this and seem either disinterested in or incapable of a logical pragmatic solution, but the article seems to try and steer advisers from collectives to bonds to protect trail, which is in danger of undermining advice to protect revenue.
    What a mess, yet with a little common sense and proper guidance from the industry this could have been solved months ago. I just hope common sense prevails and wonder what the RDR team do all day if they cannot resolve basic Issues fundamental to the success of their holy grail (RDR).

  7. What is to stop me doing all future fund switches (not product sales) as “execution only”. I tell the client an execution only fund switch preserves trail so I don’t need to charge them an extra fee. I never falling into the trap of giving post RDR “advice” on legacy products thus risking my income.

  8. @ David Ferguson

    Absolutely dead right. Time’s too short – move on.
    This issue is likely to drag on – find another income stream and don’t be a dinosaur.

    Accept the change and that you can’t do much about it and don’t defend the Loom’s!

  9. @ Anonymous | 27 Jan 2012 3:16 pm. What would stop the ‘E’.O’ business is that as no advice has been given and a switch has occurred then the trail’ will automatically switch off anyway.

    Anyway, FSA are going to be monitoring E.O and non advised business post RDR and if they see a massive increase in this then they will assume its a con to get around the RDR, and they will nail you to the nearest door.

  10. Hello Steve,
    agree with what you say and we need a proper clarifrication from the FSA.
    However, you say that “legally commission is a provider/adviser agreement with no link to any adviser/ customer service”. That may well be the csase at Aegon, but depends on if trail is deferred initial (as the FSA tends to view it) or a payment for ongoing servicing.
    Some companies set trail up so that the customer determined if it was paid and to whom, so was not deferred initial. This is easily checked as companies treating trail as deferred in initial usually operated a ringfencing or protected trail period. So when we talk about ‘trail’ there are really two sorts yet the FSA definitions don’t make this clear.

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