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FSA legacy table clarifies when commission can be paid

The FSA’s draft guidance on legacy commission, published today, contains a table explaining whether various typical scenarios will amount to advising on investments. If the answer is “yes” then the RDR ban on commission applies, if the answer is “no” the ban does not apply and additional commission can be paid, subject to the terms of the contract between the provider and adviser.

Th guidance confirms the FSA is not backing down on its ban on legacy commission despite pressure from providers.

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Comments

There are 17 comments at the moment, we would love to hear your opinion too.

  1. So basically where a client receives absolutely no service from their financial adviser that adviser can continue to receive trail commission but where advice is given the financial adviser cannot receive trail commission?

  2. This should push up bank shares quite considerably.

  3. Dennis Thatcher once said “It is better to keep your mouth shut and let them suspect you are a fool than speak and confirm it”

    The FSA appears out of control and clearly has no idea of the consequences of their actions. Unless, of course, their mission is to destroy the financial advice sector whilst causing significant consumer detriment.

    Utter muppets.

  4. What colour is the sky on the their Planet ?

  5. As above, So if we act dumb and give no advice to a client to increase his existing pension but he does so off his own bat- we get paid, If however we do our job and advise him to inrease his pension we don’t unless we charge them a fee! Has this really been thought through? Can you imagine the conversations? “Hi Fred you need to be increasing your pension contributions you know! Yes you are right, well fred just contact the provider and everyone’s a winner” Otherwise thats £250 for that advice !

    Seems a bit silly from where I am sitting, but heyho.

  6. Becoming a headcase IFA 16th November 2011 at 11:55 am

    So if I have a client with half a million in a bond/range of trusts on a platform etc and they ask me if they should make any changes to the plan, and I say no, does that mean I lose the trail commission I am already getting? I would say no but can comeone less mentally addled than me confirm?

  7. I dont understand anything anymore so can I get a job at the FSA or whatever it is going to be called

  8. It looks like FSA is promoting ‘back door entry’ to receiving commissions on legacy products. I wonder what controls they would have in place to check the practice of ‘non advised advice’ wherein the adviser would virtually advice to pay more in to existing products without calling it an advice. Moreover it would be difficult for the FSA to check it since the products and the clients are legacy and FSA can’t even do mystery shopping!!!

  9. What a day, I have just finnished reading about how “Which” have discoverd that the banks are all crooks. Now I see further comfirmation that the FSA are either very cleverly getting rid of us, or that they are imberciles and Mark, the idiot, Hoban is still performing in front of various commitees.
    What is the point? There isn’t one until the people that we elected get off their backsides and do something to sort this mess out before it’s too late.

  10. I was explaining this to my secretary fairly simply in that we move a client on Fidelity Funds Network from Fund A to Fund B as their risk profile has changed. We are receiving 0.5% by way of trail commission which is instantly turned off.

    We then explain to our client that we are not being paid now please would you pay us 0.5% as we were previously receiving. They agree. All very straight forward and we have no major issue with this.

    However, my secretary said surely the way they are changing this, it is not in your interest to steer the client from Fund A to Fund B as your remuneration changes. Quite right however I have principles.

    You can see where she is coming from. Those that give no advice will still continue to receive 0.5% but those that give advice are being treated differently.

    Finally, lets say the client has a whole of life index linked policy on which we are currently receiving comission at whatever rate.

    Client switches from Fund A to Fund B so commission stops. Client dies so rather than where we would have done the death claim for nothing as part of TCF and for having received a small element of renewal commission over the years, we now have to charge the client.

    It will come to the situation where advisors will bill all their time for every little thing that they do. No pro bono work will be done. This will result in small clients having nowhere to go for advice.

    It is interesting that the civil servants are up in arms about the changes to their pension terms i.e. their contract of employment. What about changing the contractual terms that I have with my client and the life company. Same thing in my eyes.

    Sometimes I believe that the FSA do not think through the consequences of their actions, they are so hell bent on destroying the advice sector and bringing everything down the level of stakeholder pensions which were so successful!!!

    Well I hope that the public do not support your strike and your pension scheme is totally destroyed then you will know what you are doing to advisors.

  11. It’s hard to disagree with the principle the FSA is driving at here; advice post-RDR must be paid for explicitly. Unfortunately the practical application of this principle to increments will be horribly complex for Providers. As well as modifying systems and processes to identify when advice has been given, they will then need to treat the same policy differently depending on the answer. Assuming Providers can’t simply pocket any unpaid commission, they will need to find ways of varying the product charge at policy level which is a huge challenge and will be very expensive.

  12. I’ve read the FSA’s directives and all the comments. Fortunately I am laughing so hard at the comments that its stopping me breaking down in tears of frustration and anger at the FSA.

  13. I expect that in the real world, advice will now be totally skewed by the need to get paid, so fair bets that there will be an awful lot of portfolios that never get changed at all in order to preserve the status quo of remuneration. It isn’t possible that the FSA are unaware of this. A stuffed cat would have no problems understanding it. So what can the agenda be? 2013 will have the effect of preserving the industry in aspic for most clients and advisers with nobody wishing to upset the existing arrangements, unless the advisory firm is charging by the hour in which case frenzied activity will commence, and the client will be spending a lot of money in fees. All very odd.

  14. Now that’s what I call a table

    Absolute clarity in an instance. I don’t expect to see any further confusion around this issue now that it has been so amply made clear

  15. Seems ok to me.

    I advise a switch from fund A to fund B. Fund A was paying 0.5% trail. Fund B is a new share class charging 0.5% pa less. So client now pays 0.5% CAR.

    What’s the problem ? Oh Yes the problem is vested interests. Providers who don’t want to charge 0.5% pa less, platforms that want to restrict investors to those who go through “their” adviser. Still a long way to go.

  16. So what we will have is the last great churn between now and Dec 31st 2012. After that, we will have ‘new churn’ where nothing AT ALL gets switched or changed, so that an adviser can still get their commission.

    So that’s ok. Plenty of commission now and retain it in the future. Simples

    Shame for the clients of these type of advisers, but hey, we don’t work on behalf of our clients, we work on behalf of ourselves. Hold on, is consumer protection not one of the FSA’s statutory objectives?

  17. @ Dathan – you may well be right and my guess is that you probably are. What does this say about the Industry, sorry Profession ? Sometimes IFAs get so bogged down in arguing how good they are incomparison to Bankers that the sins of so many IFAs are overlooked.

    Although I can’t really blame the FSA for assuming the worst about advisers I would be much happier if those who were staying post RDR were the good guys and those leaving the bad but do not think that this will be the case. I have serious doubts about any progress having been made in the last 25 years.

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