The FSA has set out when trail commission can continue to be paid on advice given on existing products after the RDR deadline of December 31.
The regulator has published a policy statement on the treatment of legacy assets following a consultation paper last November.
Today’s paper clarifies in what circumstances trail can continue to be paid:
- Where top-ups are paid into a product – no commission will be allowed on the new investment amount, but trail commission can continue on the pre-RDR investment amount.
- Advice that leads to no change to the product – trail commission can continue, although any new payment for the advice would need to take the form of adviser charging.
- Changes that take place automatically following pre-RDR advice, with no new advice post-RDR – commission can continue to be received, for example, where there are automatic increases to regular payments or rebalancing in accordance with pre-RDR advice, given that no new advice is provided post-RDR.
- Fund switching within an insurance product- trail commission can continue on the product as a whole, though new adviser remuneration would need to take the form of adviser charges. Top-ups would need to be treated in the same way as any other top-ups, i.e. new commission could not be paid on the new investment amount.
- Offsetting trail commission against adviser charges – new commission cannot be accepted post-RDR, even if the adviser intends to refund it to the client, but trail commission for pre-RDR advice or transactions can be offset against adviser charges.
In November the FSA confirmed its intention to go ahead with a ban on legacy commission, which it defines as additional commission payable on pre-RDR assets where there has been a change to the product post RDR, such as top-ups to a life policy or the buying of new units in a unit trust.
However the consultation paper prompted the industry to raise concerns about the impact of the legacy commission ban on trail commission brokered on pre-2013 RDR business.
The wording of the paper, which said trail can continue where it is “payable for advice provided pre-RDR”, led Aegon and Aifa to suggest this could be interpreted to mean if any post-RDR advice is given, all trail must cease.
The FSA says it plans to monitor how firms are implementing adviser charging, and will also be closely watching the amount of trail commission firms take.
The FSA says: “Once the RDR rules have come into force, we will take action if we see firms acting in a way that could lead to consumer detriment, for example, recommending retention of higher charging products so they continue to receive trail commission.
“We will also monitor the overall level of trail commission in the market, to check whether it is reducing or remaining at current levels.”
Aifa Policy director Chris Hannant says: “This is a positive step forward for advisers whose business models were under threat from the proposed changes. It is now clear that advisers can continue to receive previously agreed trail commission when topping up a previous product or switching within a product. This is a sensible outcome, which is good news for advisers and consumers, as it would have created a perverse incentive not to offer advice.
“We had previously established that existing trail commission, post 2012, will continue for firms until a product matures or is terminated. However, it was not clear what precisely constituted termination of a product and what was merely switching. We are therefore pleased the FSA has responded to our calls for greater clarity and will continue to work with them on any further areas that are unclear.”