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MM leader: Trail sunset would be a bridge too far


The FCA’s latest board minutes reveal a number of new RDR concerns to add to the worries about dealing bias expressed in recent weeks.

The board questioned the continuation of commission for non-advised investment sales and discussed the risk of “poor consumer outcomes” from allowing trail commission to continue on pre-RDR business.

The need for a clear distinction between advised and non-advised sales was also discussed, with concern customers may think they are getting regulated advice, and the safeguards which come with it, when they are not.

These worries follow FCA chief executive Martin Wheatley’s recent comments about the dangers of dealing bias in certain post-RDR fee models.

The FCA will be conducting a number of thematic reviews on these matters, feeding into a post-implementation RDR review next year. It appears likely this will lead to yet another wave of regulatory change.

Commission for non-advised sales was always likely to catch the regulator’s eye, especially with many adviser firms offering a non-advised service in areas such as annuities and the FCA move to ban execution-only platform payments.

In April, FCA technical specialist Rory Percival told an industry roundtable that “if it looks and feels like advice, it probably is advice,” and we can expect a significant crackdown if the FCA finds evidence consumers think advice is being given on non-advised services.

Perhaps the most controversial move would be a sunset clause on pre-RDR trail and renewal payments. The regulator has always been clear these would be allowed to continue and firms have based future business plans on this guidance.

There are also question marks over the legality of unpicking certain ongoing payments which were arranged as an alternative to higher upfront commission at the time the advice was given, with no expectation of ongoing service.

The April 2016 ban on legacy fund group payments to platforms is already threatening many trail arrangements and plenty of such payments will naturally convert to adviser charging after client reviews.

The FCA is concerned about the possible incentive for the adviser to do nothing but such a dramatic, destabilising intervention should require significant evidence of consumer detriment.

After giving advisers such strong past reassurance that these payments could continue, a ban on pre-RDR trail would leave a bitter taste in the mouths of many firms who have made significant strides to abide by the FCA’s RDR rules and could open the door to possible legal action.


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There are 14 comments at the moment, we would love to hear your opinion too.

  1. Many years ago my parents put a significant sum of money into Halifax Gold account which was paying an excellent interest rate. As we know, the rate on this account fell and there were better options available from the Halifax. But inertia, apathy, ignorance or whatever meant that many investors including my elderly parents stayed with the old (expensive) account. I just wish the Halifax had automatically moved my parents to a better interest paying account on the same terms or that the FSA had instructed the Halifax to do this. TCF and all that.
    The FCA has the same problem with pre RDR trail commission. For a myriad of reasons, consumers are locked into old contracts paying higher charges. For the reasons explained above, it is not right and so I can see the FCA trying to find a way around the simple answer of switching off trail which I feel would indeed be subject to legal action. So the FCA will find another way using their statutory powers which may be along the lines of instructing providers to switch client’s pre RDR investments in to equivalent clean funds. Small print in commission agreements means that trail is turned off as a result of the transfer and the result is what the FCA wants.
    This may destroy any trust between the regulator and advisers but consumers and Government would love it.
    Plan for a world without pre RDR trail commission is my advice.

  2. Taking trail commission indefinitely without providing any service to the client is daylight robbery. I accept the client will have signed up to it but that doesn’t make it right. Fair enough if you took a lower initial commission but that doesn’t mean the trail should be taken for the life of a policy – just until you have re-couped your initial costs. Otherwise its just money for doing nothing. No suprise some advisers are up in arms about this – would be great to be paid to do nothing. Sam is right – the Fca will find a way to stop this somehow so everyone should plan for an RDR charging structure. Don’t get me wrong, I do sympathise with advisers who are still re-couping initial costs but the industry can do without the ones who are taking money for nothing

  3. Simple answer. Advice given and continuing, payments continue. Advice not given, no payments to be made and client is given these as a benefit.
    This will be far to simple I feel for the powers to be to consider.

  4. Singled out unfairly? 15th August 2013 at 10:47 am

    @anonymous 10.03am
    Problem is, some people took sensible business decisions. Instead of say 7% upfront on a product, they took 3% plus 0.5% (no difference to client) because they wanted to be in a better commercial place long term. Not evil, not illegal, just sensible. Lots of businesses/industries work like this. Take eg Sky, they “lost” money upfront because they knew they would recoup that loss (and some!) over time by then charging more than they need to cover the costs of the service they are giving each year – its called profit and its a business plan. So why should our industry not be allowed to do the same? I accept its different if the client contract incurs an additional charge, but most trail decisions like the one I outlined didnt, and anyway in an open marketplace clients can always seek new advice to change what they have if its uncompetitive, so where exactly is the horrendous problem that would merit treating our industry uniquely unfairly in this way?

  5. A business used to be valued based upon a multiple of trail commissions

    so how much is a business with a £100000 of passive income worth now ? IMHO no more than 1 years income and that will fall to Zero

    How much is a business with £100K of adviser charging worth probably less than 100K becuase clients can turn it off

    wow what a profession work for 40 years and business is worth next to nothing

    Annoymous trail commissions are paid by product providers not by clients and in my 40 years in this industry no product provider has ever required me to provide a service in return for that trail

    The fact that I have provided service to the client is irrelevant to the payment of said trail

  6. RegulatorSaurusRex 15th August 2013 at 10:56 am

    Anoymous 10:03

    “Money for doing nothing”, this is no different to what bucket shops do, Hargreaves Lansdown for example. Money for nothing as the song goes.

    Firms pretend to be offering a “non-advised” service where they send letters to known investors inviting them to partake in the latest investment scam, sorry fund, they take an initial “fee” and an annual “fee”, the punter, sorry customer, feels they received a personalised recommendation so if the fund is falling off a cliff they might legitimately expect the “adviser” firm to let them know it might be a good idea to get out PDQ, but they don’t because they would lose the annual “fee” for doing bugger all.

    The difference between that and renewal or trail commission is that the latter was a contractual matter that the life office had entered into and the client accepted it.

  7. Would it be far more efficient to educate the public and consumers to review their plans and to take control?

    If FCA required every firm to send information in no uncertain terms explaining that the investor/policy holder should review their charging structure. This could be done as a compulsory TCF exersice and followed up.

    This is just fairer all round and ould avoid lots of money being wasted on discussions and internal legal arguments.

  8. Very few advisers took less up-front commission to take higher trail. Generally they wanted as much initial as possible having no interest in building up a recurring income for their network or employer! Trail was taken because many were aware of the idea of practice buy-out based on trail and recurring income and wanted to build a business value for their retirement. But few actually contracted to provide a service. Those that claim they charged lower up-front and took higher trail are few and far between – I suggest many claimants are more fearful of losing trail and use this as an excuse to keep it. For the very few who did – sorry collateral damage for the greater good of the consumer.
    For those claiming to provide a service – simply put you clients into post RDR funds and renegotiate your on-going service and charges – we do it all the time. That way the client benefits knowing that they are not paying 0.5% for the next 30 years when you pack up in 5. Servicing is probably cheaper too.
    And where you are not providing a service but accepting trail – then for the reasons already given – expect to lose it. It cannot be fair to consumers to keep paying greater charges for what could be a considerable period of time. This is where we have to understand where the FCA are coming from. The impact on us is, to use the cliché, collateral damage for the greater good. Too many folks commenting here seem to lose sight of the fact that consumer’s interests are paramount.
    It is not a case of treating us uniquely – we are a unique industry which sadly requires unique treatment.

  9. @Sam
    “For those claiming to provide a service – simply put you clients into post RDR funds and renegotiate your on-going service and charges – we do it all the time”
    Are you saying you only claim to offer a service, rather than actually doing so?
    Furthermore, if the government were to wipe out the over 80 population do you think they could claim they were doing it for the benefit of the nation and that these people were simply collateral damage for the greater good?

  10. We have a diarised and auditable system for every client who has agreed with us to receive on-going services. We also keep timesheets. Where it can be justified to be in the client’s interests we have (with permission of the client of course) moved client’s assets so that over the long term they will pay less in on-going charges should they wish to cancel our service at any stage. It also has the beneficial effect of simplifying annual reviews – and thereby keeping them cheaper for the client. We charge hourly rates and this business of 3% plus 0.5% baffles me. We have done good profitable business with full advice for effectively less than 1%.
    We try to see things from the client’s perspective and I fear that in the past too many advisers and firms have tried to line their own nest. We may not be the richest advisers in the world but we can sleep at night. As for the collateral damage comment – if the FCA can see so many £billions of consumer detriment and putting it right would cost a few firms and advisers a few £million then frankly the FCA will ignore advisers. And whatever the rights and wrongs of the matter are, our MPs will not get re-elected by a minority of (perhaps rightly) disgruntled advisers. Our MPs will sway with the majority.
    I am not saying that a blanket switch off of pre RDR trail is right or wrong – just that it will happen. We have foreseen this for years and have planned for the future accordingly.

  11. Singled out unfairly 15th August 2013 at 3:43 pm

    @ Sam
    “Too many folks commenting here seem to lose sight of the fact that consumer’s interests are paramount”
    The consumers interests surely dont extend to ripping up legal and agreed contracts, simply to give them terms that werent around when the first deal was done.
    And WHY are we unique? Are we not a commercial business sector then? Why are we any different to all the other pure “advice” industries – legal, accountancy, medical, travel, etc – all are commercial and expect the law to apply fairly. So should we.

  12. Advice from FCA website to consumers is” if you want to stop trail on pre RDR contract, SELL YOUR INVESTMENT! but get advice from a tax expert first in case there are any penalties. If a consumer proceeds with this advice and it proves to be a bad move, who will take responsibility? The tax adviser?

  13. I am not surprised that the FSA is making noises about trail. The FSA wants to run our businesses, it wants to control everything to the smallest detail. We live in a world gone mad, a world full of government & regulation, quasi-communism.

    I offset client charges with trail, so non-trail clients pay the same overall as trail-clients. I would not reduce my charges if trail is turned off, those clients would simply have to pay me the full charge.
    If the providers (as they will no doubt) keep the trail and do not reduce AMCs, then the client will simply end up worse off, or where possible I will move the clients to a new provider to avoid that.

    One day the communists will bust the country again (c.2017) and the FCA will be cast aside for good. Not long to wait, although a bust country has no wealth of course… not many advisers are ready for that.

  14. Perhaps we should bear in mind that the ongoing commission from many legacy (life) products can’t actually be turned off. All that can be done is to forbid life offices from continuing to pay it to intermediaries, on the blanket assumption that none of us does anything for it. Regulation according to the lowest common denominator and the usual maniacal obsession with trying to put the world to rights overnight.

    Unless the life offices are ordered to start rebating it all to policyholders (the costs and logistics of which are horrendous ~ not that the FSA ever gives a stuff about either of those), the life offices, one assumes, will just keep it for themselves.

    On the FCA’s website it says ‘We are fair and principled in our approach to regulation.’ To which might be added ‘But we don’t listen to anything anyone else has to say, because we know we’re always right and we spend millions of pounds of OPM every year on outside agencies to prove it, to our satisfaction anyway.’

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