The news that Standard Life is to switch off trail commission on some of its legacy products has not been well received by advisers.
Standard says the decision has been taken due to the prohibitively high cost of managing trail payments on these products.
It is going to switch off trail payments on 12 legacy pension products when clients carry out certain non-advised activities, including varying contributions or change the indexation on their policy. Switching funds will not result in trail commissions being stopped.
Standard has no doubt looked at the terms of its contracts to ensure it has the power to take such actions and no doubt there will be advisers looking just as hard at their contracts to see if Standard has overstepped itself.
But assuming they have the right to switch off trail commissions in this way, it will not stop advisers being bitterly disappointed that the life company actions and feeling like it has gone back on its side of the deal.
These trail commissions were never often intended to pay for ongoing service. Advisers made an active choice to receive trail commissions on an open ended basis, in return for a significantly lower initial payment. Had they realised that life companies could and would arbitrarily switch off these payments at some point in the future, would all the advisers affected have made the same decisions?
That the company has tried to play down the significance of its actions by pointing out the change will affect only a small percentage of its back book can be seen as an acknowledgement that its actions would provoke a negative reaction.
Many small businesses struggling to negotiate the transition to life after the RDR rely on these and other legacy trail commissions for a source of steady cashflow while they get their client bank to agree to pay recurring fees.
The decision also highlights one of the major bones of contention that the RDR has unintentionally dug up – the battle for control of life company legacy business.
As life companies increasingly being cut out of the loop by platforms and with many adviser firms basing their charges on the total amount of assets under advice the matter of who controls the legacy assets has never been more important.
The amount of assets in legacy business with life companies is enormous and the struggle for control is likely to get increasingly bitter.