When I advised a number of clients to take up the Keydata plans (none of whom have lost money and are still getting their income paid), I opted for initial commission of 3 per cent and 0.5 per cent trail during the term of the plan rather than 5 per cent initial and no trail.
This choice for remuneration was in line with my philosophy of not to take more initial commission than could be obtained through unit trusts, etc (normally 3 per cent initial and 0.5 per cent trail) to ensure a level playing field for bonds and other lump-sum investment products so I could not be charged with product/commission bias.
How I wish now that I had opted for full commission of 5 per cent on these plans, as it now appears the administrators view IFAs’ trail commission as unsecured creditors.
Over the next five years, I will have lost around £12,495 in renewal commission for all my Keydata clients while they will not lose out.
What price integrity and level playing fields? Now I know – £12,495.
If I had charged a full 5 per cent fee, then I would have been much better off but who in their right minds is going to agree to pay an IFA 5 per cent of their initial investment as an up-front fee?
I am in the process of canvassing all my 300-plus active clients on how they want to pay for advice in the future and the responses I am getting indicate that the commission options are preferred by the majority of clients in order to spread the cost of advice over a plan’s term.
What is the FSA thinking about when they are trying to impose such Draconian changes and make firms become wholly fee-based?
Once RDR proposals come into force, are life offices going to be able to go back on existing renewal and trail commission agreements? Does anybody at the FSA realise that the changes they propose in the RDR are going to isolate the majority of ordinary people who could not possibly afford the level of professional fees that would have to be charged to make our businesses viable and sustainable. I doubt it.
Ned Naylor & Co