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FSA sets out details of trail commission legacy rules

The FSA has outlined its new adviser charging rules which allow trail commission to be switched if a client moves adviser firm post-2012.

Advisers choosing to re-register commission after 2012 will have to tell customers when they apply for re-registration and reveal the amount of commission being transferred.

Advisers will also have to provide an ongoing service in exchange for receiving the trail commission, regardless of whether the original contract allowed for this.

The details come in its quarterly consultation paper today inviting feedback on changes to the FSA handbook.

In March 2010, the FSA published its final RDR rules on adviser charging, but these did not cover what would happen to trail commission in 2013 where a client moves to a new adviser.

In the paper the FSA says: “Following discussions with the industry and consumer bodies, we propose to add a new rule saying that re-registration can continue, where permitted by the contract between the provider and the previous adviser, and subject to the terms of that contract. There is no intention to compel new advisers to re-register trail commission if they prefer not to do so.”

The FSA has also confirmed that trail commission on legacy business, in place before the end of 2012, will continue to be paid. This rule will also cover situations where firms give advice on a commission basis shortly before the end of 2012, but the initial or trail commission is not paid until 2013.

If a firm or its book of business is sold, trail commission will be payable to the new firm according to the contract terms.


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There are 11 comments at the moment, we would love to hear your opinion too.

  1. I have never had a problem explaining the commission recieved to my clients. They know there is no such thing as free advice although some question the amount.
    I would be of immense value to list the value of costs especially identify the cost of compliance and regulation seperately and then when newspapers refer to “Commission hungry salesman” our costs would be insignicant and the reduction in yeild better explained as a result. Then perhaps journalists would understand that poor returns is not the cost of advice alone!
    If I recieved all the commission as stated, i would have retired years ago. sadly I am still working.

  2. And if the renewal commission is no longer being paid, then for regular premium contracts, I trust the providers in turn will reduce the premium, and/or wherever possible enhance the ongoing terms for the client..

    Pigs are fuelled and ready to fly…

  3. Ancient a mortgage broker in N3. 6th October 2010 at 3:05 pm

    Do estate agents have to reveal the amount of trail commission received for letting out hundreds of properties and doing bugger all? – NO – and thats why im quitting Financial Services to become one and earn hundreds of thousands in commissions for introducing a seller to a buyer and telling what can be tantamount to a pack of lies along the way but with both parties winning if it all goes through – including the estate agent.

    Advisers are treated as criminals for giving advice and earning commission and the good old days are gone forever 80% of IFA’s could feed their family and pay a mortgage being an IFA. Now, its just the ones doing Pension Transfers that earn more than a Doctor or Lawyer that enjoy the quality lifestyle.

    Post 2012, just watch the headlines within 18 months of huge networks hitting the wall and going bust.

  4. For those IFAs who fear “adviser charging” let me give them some reassurance. First of all adviser charging is not charging fees. The cost of advice can come from the product in exactly the same way as it does now only you and the client get to agree the price for your services rather than the product provider deciding the amount.

    That is great news for you and for your client. What the FSA have done in respect of “trail commission” is to listen to what the IFA community has asked them to consider and then done what was asked of them.

    It does seem to me that they get beat up for everything they do even when they do what the IFA has asked them to do! Very strange.

  5. In twenty years time nobody will have a pension life insurance or any form of proper financial advice.There will be no real financial planning for the middle or lower classes .This will be down to an FSA who are certainly not qualified to live in the real world and overpaid ,IFAs who have deserted in their droves because they have been crucified in their droves.What right minded person would want to be a financial advisor

  6. Kevin Archer is right ! Tot up the FSA fees, FSCS levy, Indemnity Insurance premiums and then the cost of compliance (network fees or employing people to ensure that you don’t breach yet another rule invented by someone in Canary Wharf) and a sole trader is paying out £10-£12k pa. Add the cost of running an office, the car, licences (including ICO, CCL etc), courses and exams, taking time out to attend seminars (more to fulfill CPD evidence than because you need the information) and the total cost is £30k plus.

    If turnover is £100k you lose the £30k to expenses and more than £20k to tax. This leaves just £4,000 per month to live on – no holidays, no sick pay, no pension just 60 hour weeks at the beck and call of clients and with the risk that a complaint might bite you on the ass at any time.

    Why would anyone choose this job now?!!! Most IFAs are simply biding their time to retirement – on average just 5 or so years away. And that’s when the British public will begin to understand what they had and how the FSA was instrumental in killing off the only really good part of the Financial Services sector.

  7. Dermot Brannigan 6th October 2010 at 5:20 pm

    Excellent news, and common sense. However, what happens to those providers who claim that the trail/renewal commission always stays with the selling agent? They clearly will not be demonstrating ongoing service, so are the FSA going to deal with them?

  8. Did anyone hear the highly motivational speech by David Cameron? All about encouraging entraprenuers and innovation. Am I on the same planet? BROWN STILL RULES in our Industry.

    Regarding renewal commissions, my previous IFA Networks- all now in administration, BULK novated my clients policies to other unscrupulous IFAs before they went bust, presumably all for a continuing income stream AND WITHOUT CLIENTS PERMISSION. I tried to transfer these policies to my new agency individually and due to lack of provider co-operation and over-stretched resourses eventually gave up though cash flow problems. I am now a full time Jazz Pianist earning a reasonable income with NO REGULATION. PS I am also a chartered engineer

  9. I am glad they have sorted this out, though again in their ill-considered “didn’t think of that one” manner.

    The issue they SHOULD address is the unfair fashion in which a product provider refuses to transfer trail commission to a new adviser, even though the originating adviser has failed to treat their customer fairly e.g. reviews.

    Given the competency of this regulator, they might review this, IF pressed for a few more years!

  10. Crazy gang IFA member 12th October 2010 at 10:56 am

    As usual, the FSA can’t resist sticking their oar into this and once again complicating the whole issue. Yes we should be be looking after our clients on a regular basis, something a lot of us have done for many years in the past for nothing, or very little in some cases. I can’t afford to do this now however and all my clients have to pay in some form or another to be looked after. If they are not happy with this then they can always advise themselves if they want to, it is a free country. Any clients with relatively little money to invest will have to go and buy tracker funds from a volume seller I suppose, never mind all the strategic financial planning that a good IFA can provide, this does not seem to matter any more as it is all about cost. The cost of everything and value of nothing.

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