The FSA’s ban on legacy commission is likely to cost insurers hundreds of millions of pounds.
Insurers have told Money Marketing the necessary systems changes to comply with the ban on legacy commission will double the FSA’s estimated costs of introducing adviser charging.
Zurich believes if system changes were made on all legacy products, the costs of the RDR “would comfortably more than treble”.
The FSA’s consultation paper on treatment of legacy assets last week confirmed trail commission for ongoing advice after the RDR will continue but legacy commission for changes to existing products after December 31, 2012 will be banned. It follows a letter sent to trade bodies in March clarifying the FSA’s stance. Until then, many insurers had assumed they would only need to change their systems for new business.
The FSA says the costs have already been priced in to earlier adviser-charging cost estimates from March 2010 which estimate one-off costs to providers of between £330m and £385m and ongoing costs of between £70m and £85m.
But Legal & General platforms and policy director Danny Wynn (pictured) says: “The ban would certainly double the costs we were intending to spend on adviser-charging. If we were to try to keep the entire legacy book open for advised top-ups and facilitate adviser-charging, it would more than double our costs.”
Aegon head of regulatory strategy Steven Cameron says: “I do not believe any providers that provided costs to the FSA a couple of years ago thought that what the FSA is now doing on legacy commission was what to expect.”
Aviva estimates its current RDR spend will increase by 25 per cent if all legacy products were changed to comply with the ban.