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Carl Lamb: Advisers are in denial over trail switch-off


In the ever-changing world of the financial adviser, new challenges face us every day – to our workload, manpower and income streams. Darwin was right when he said only the fittest of us would survive. 

Probably the greatest challenge on the horizon is the removal of many trail commission payments to IFAs. Advisers have until April 2016 to transfer their platform clients to an unbundled proposition and persuade them to pay a fee for advice.

Trail on group auto-enrolment pension schemes will also be banned from April 2016. Trail income that was the bread and butter for firms with long-standing relationships with clients will disappear at a stroke. And much of it will be switched off well before the deadline by providers which, for once, are getting ahead of the game and forcing the switchover sooner.

What is amazing is the number of people in our industry who are still in denial. I have attended a number of IFA-rich events – including PIMS and the Retirement Planner Forum – and been astounded at the number of people who have put this issue on the ‘too difficult’ pile.

Many believe the FCA will bow to pressure and change the rules before the deadline. Others think they do not need to do anything yet and are simply burying their heads in the sand. Behold the ostriches.

Let us not pull punches – this is a genuine threat to firms across the UK.

Some clients will baulk at paying a fee – especially for group schemes where employers have never previously paid for advice. 

Clients may decide not to take out an ongoing service option with their advice firm so the regular, reliable income stream will evaporate. 

Some firms will inevitably go under. The ostriches have suddenly become dodos.

What needs to happen is twofold. First, there must be a dialogue between IFAs and providers. 

All the providers have different terms, agendas and timetables. They could potentially turn off your trail at the drop of a hat. 

Knowledge is key here and you need to know exactly what will happen to your trail income and when. This will take time. You may find yourself in negotiation with 40 or 50 providers so you need to manage the process carefully.

Now is not the time for vague promises. The terms need to be put in writing and the implications carefully analysed and explored. 

Recommendations for products or providers should not be based on their trail commission plans, so if suitability indicates a route that cuts off legacy trail, advisers have to take the hit. 

They just need to be sure they understand the impact this will have on their bottom line.

Second, advisers need to talk to their clients, who must be prepared for the changes and made aware that advice services add value and therefore is worth paying for – the argument they have had free advice in the past needs to be debunked. 

The industry needs to start planning for this now so all future reviews include a conversation about remuneration. 

Advisers ignore this at their peril and any firm that reaches summer 2015 without making plans is heading for extinction.

Carl Lamb is managing director of Almary Green



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There are 18 comments at the moment, we would love to hear your opinion too.

  1. Nick Pilkington 12th August 2014 at 9:27 am

    What will really worry me is if the FCA, after the 2016 deadline, decide to turn off the ability of adviser charging to be facilitated by the provider.
    Then every client will have to be invoiced on a regular basis and that will certainly be the end of the majority of IFAs

  2. Carl, I agree with your sentiment and any forward-thinking adviser/firm should have started these discussions several years ago with the advent of RDR. However (and I may be wrong) I was under the impression that regulator applies this to NEW business (which in practice includes alterations to existing business). For example an investment Bond paying 0.5%pa. If this is the case, and providers turn off pre-existing agreements, presumably someone will make a legal challenge?

    This may be splitting hairs for anyone that is providing an active service as the fee discussion and agreement should have already taken place. Of course this has considerable ramifications for those that believe the business valuation models based upon “passive revenue”… which make no sense. RDR has given firms the opportunity to dictate terms (rather than providers) and properly identify who they wish to serve (clients) and who best (of providers) to form working “partnerships” and of course keep this under review. The world of advice has changed, no longer can adviser firms be paid for doing nothing… and of course providing advice should not cost “nothing”…which is fair isn’t it?

  3. Dominic, the key as I understand it is that, from April 2016, for assets held via a platform, that there won’t be any trail for the platform to pay the adviser with, as from that point product providers/fund managers won’t be able to make those payments to platform providers, for them to then pass on to the adviser. Not so much a change in agreement as nothing furher to pay under the existing agreement! Implicit in that is legacy commission arrangements continuing (as permitted by the adviser charging rules) for business not held on a platform (maybe the hypothetical bond you refer to?)

  4. Trevor Harrington 12th August 2014 at 10:20 am

    I think the biggest issue has been that, as usual, the FCA only half thought the job through in the first place, and then based it’s rules concerning switching off trail on their own misconceptions and prejudices.

    The result was that, after various dictates being handed down, which were apparently set in stone, they subsequently changed the meanings.

    Those Advisers who have done little or nothing so far, have turned out to be absolutely correct, in as much that the picture is still changing and still moving from one month to the next.

    I would certainly find it useful if the following could be confirmed, and I suspect that many others would find it rather helpful too :-

    1) Am I right in saying that legacy trail is not affected for Pensions or Single Premium bonds (even if fund switching is recommended – or is the jury still out on this one – I think it is) ?
    2) Am I right in saying that legacy trail from Unit Trusts and ISAs can be switched into clean share classes and converted to ongoing adviser fees any time before April 2016, and that many platforms have still to complete their full fund range clean share class alternatives – I think it is ?

    Somebody brighter than me, who presumably has spent hours and hours tracking the FCA’s piecemeal releases on these issues, will be able to give us all a clear picture on this now, l something which certainly has not really been possible to date.

    (NOTE please do not use the term “collectives” for your summary of the issues as they could be any of the above products, and they are apparently all being treated differently.)

    Thank you somebody.

  5. Firstly: don’t expect a legal challenge – who is going to do or fund it? APFA?

    Secondly, the numbers of clients in businesses who are susceptible to changes in the Trail are huge.

    According to the Interim document of the Heath Report published today circa 11,000 advisers are highly exposed by changes in Trail. Panacea has completed 2 surveys on this subject. One indicated that 50% of all the IFAs exposed thought that the removal of trail would compromise their businesses. If this is right over 2,500 firms are riding trail and then exiting the business.. The other made the figure 83%.

    5.5m access their advice through this group.

    It is not just that advisers didn’t start early enough but for clients stuck in heritage policies there is no way of moving to clean funds without incurring a loss


    Garry Heath

  6. Christopher Petrie 12th August 2014 at 11:06 am


    The “switch-off” of trail in April 2016 applies to OEICS/unit trusts, whether in an ISA or unwrapped.

    Easiest way to solve the matter is to ensure your clients agree to an OAC (and which can usually be paid via a platform). The OEIC is then in Clean Shares, so depending on the platform cost and the Ongoing AC, there may be little or no material difference to the clients Cost of ownership (COA).

    Individual Life and pension products are unaffected by the April 2016 deadline.

    GPPP / AE schemes are affected by different legislation.

  7. Christopher Petrie 12th August 2014 at 11:08 am

    @ Nick. The FCA have made no such indication at all. If they ever were to do that, almost every IFA in the country would simply move to a vertically-integrated arrangement with a Platform/provider and achieve the same result that way.

  8. Money Guidance CIC 12th August 2014 at 11:17 am

    Some good points made, although, for the record, it was Herbert Spencer that first coined “survival of the fittest”.

  9. Worth remembering that, although the April 2016 switch-off only applies to retail investment products held on platforms, the FCA did state its intention to consult at some point on similar rules for ‘adjacent markets’:
    “we defined non-platform adjacent markets as those offerings typically provided by Self-Invested Personal Pension (SIPP) Operators; life companies offering life wrappers; discretionary fund managers, and those execution-only brokers and ISA managers that were not caught by the platform service definition.”

  10. Christopher Petrie 12th August 2014 at 12:35 pm

    @ Beedub.

    Not just OEICS/ISAs “on platforms”. Those held directly with companies such as Invesco, Jupiter, Threadneedle etc will also be required to become Clean Shares by April 2016.

    Those types of companies have indicated they won’t want to offer Advisor Charging, so some advisers may be discussing with their clients moving direct investments onto a platform – usual compliance requirements notwithstanding.

  11. Thanks Christopher – I’m sure I read something recently where the FCA were quoted as saying, explicitly, that the rules didn’t apply to direct holdings with fund managers. I could be wrong, however!

  12. Rt Hon Sir Arthur Streeb-Greebling 12th August 2014 at 1:45 pm

    Trail ( previously:renewal) commission, has always been justified by it being for the seller to ‘service’ the policy and thus keep it on the books. Thus, when a seller ceases to be authorised the insurer, UTM whatever turns off the ‘renewal’ commission on the premise that unauthorised people cannot ‘service’ a policy. which leads me to my point, and my question: what ‘servicing’ exactly needs to be done to a With Profits or Managed bond? QUD

  13. Interesting comments re direct holdings. Does anyone have a definitive answer? If Christopher is correct, will fund managers be converting all clients to unbundled share classes without their express consent? I imagine these will be largely old holdings as most business has been done via platforms in recent years, so many of these clients probably do not have a proper relationship with an adviser. Has the FCA even thought about this? Also, does anyone have a definitive answer as to what will happen to clients on platforms who simply do not respond to correspondence from the adviser or the platform? I believe the FSA (as was) suggested that the platform may have to “return” the investments to the individual fund manager until it was pointed out that this might be tricky with ISA investments held across a number of fund managers.

  14. This is where I read the bit about direct holdings, but admittedly I can’t find the quotes formally reproduced elsewhere:

    The general steer regarding share class conversions was that it may be possible for platforms/nominees to convert to clean without explicit permission from the client, as long as said platform/nominee can reassure themselves that there is not likely to be any detriment and have given each client sufficient information and notice prior to the change:

  15. The FCAs rules around payments from fund managers to providers only apply to legacy products held on platforms. Assets held directly with fund managers are not be affected by the changes being implemented in April 2016 as they are not defined as a platform. The final Policy statement issued by the FCA regarding the changes (PS13/1) outlines all the rules regarding the rule changes.

    Linden is correct in saying that these direct holdings will largely be old (The Platforum predict circa 97% of ISA business is now written on platform) but the FCA don’t intend to look at these areas. Indeed, David Geale, head of savings, investments and distribution policy at the FCA, was quoted as saying about the RDR ‘Our position has not changed. We’re not planning any further work’. That being said, its probably naïve to assume that it won’t change at some point.

    With regards to your point about what will happen with clients who don’t respond – I have no idea. I can see some platforms developing soft touch, self-directed propositions over the next couple of years!

  16. Trevor Harrington 12th August 2014 at 5:19 pm

    Well that is a lot of responses – but still no definitive answers to my original questions !

    To say that “Platforms” cannot pay legacy “Tail” is presumably wrong, because there are pensions and life insurance bonds on platforms, which I understand are not affected by the projected trail cut off, even if fund switching advice is given – Is this correct or not – somebody please ?

    Likewise, do all platforms now have clean share class alternatives to all their funds – I think not – answer somebody please ?

  17. Christopher Petrie 12th August 2014 at 6:10 pm

    My clear understanding is all units must be converted to Clean Shares by April 2016. Trail in theory is still .allowed. In practice it will stop and clients will need to sign AC agreements. Most direct investments won’t facilitate AC though platforms will.

    Individual pension and investment bonds do NOT need to be converted and FBRC will continue.

  18. Trevor Harrington 13th August 2014 at 9:53 am

    Thank you Christopher,

    Seems perfectly logical to me, all be it that it was an entirely unnecessary piece of regulation in the first place as it achieves absolutely nothing of benefit to the client (or customer as FCA would erroneously say).

    So, as far as April 2016 is concerned, we can ignore pensions and insurance bonds, and ISAs and unit trusts on platforms can only be dealt with efficiently, in one “project”, once the platform concerned has completed it’s availability of clean share classes.

    So Carl Lamb – what was your question again ?

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