In all the regulatory wrangling that surrounded the RDR, the then FSA’s position on trail commission took a long time to clarify. Advisers and providers were unclear of the rules on whether trail was acceptable, and what the triggers were for trail to be switched off. As a result, the regulator was forced to make rules setting out exactly when trail would be payable post-RDR.
The advice sector had time for a small intake of breath, before the FCA struck again in the form of the ban on payments between fund managers and platforms. The two-year sunset clause on legacy payments agreed as part of the reforms effectively switches off trail on advised platform business with effect from next April.
Finally, advisers understood that for the most part, trail on pre-RDR business would continue. Unfortunately, the situation was as clear as mud for anyone outside the advice bubble – one national newspaper journalist once told me the RDR was not an easy sell to consumers because the rules around trail and platforms made it a difficult concept to explain.
It is a situation that is about to get murkier still thanks to policymakers in Europe. Mifid II is a wide-ranging regulation that will impact how client calls are recorded, the definition of independence, consumer protection and the regulation of pensions, to name but a few.
What has got less attention is the significance of a ban on commission payments, which would switch off any commission, including trail, on all advised business in the UK.
There are several reasons why this issue has not come to the fore, not least because of a lack of definitive information from the regulator. There is disagreement between the FCA and trade bodies about how the rules should be interpreted, and whether the FCA has any scope to act outside the diktats of the European Commission.
Part of the challenge the regulator faces is that it would need to argue that keeping trail commission is in the public interest. This would also need to interact with the Government review into the advice market announced this week.
While many firms will be predominantly fee-based, advisers will need time and certainty of the rules to prepare for the loss of an average of 13 per cent of their revenue. Unfortunately neither are on the cards.
Natalie Holt is editor of Money Marketing