The FSA’s RDR proposal to outlaw fund-based trail commission is an unwarranted intervention in the adviser/client relationship and possibly constitutes a restriction of trade.
It is based on the assumption that the present system is in some way broken and in need of fixing but only the FSA thinks this way.
Yes, members of the industry have had the opportunity to submit comment. But, again as usual, although the FSA publishes a list of those who have responded, what it refuses to publish is what those responses were, preventing the industry from knowing how strong opinion might be against any of its proposals. It merely claims to have “taken the comments on board”.
As a colleague put it: “What do you do if a client cancels the monthly payment mandate for his ongoing advice retainer?” If you send him a new pay-ment mandate to complete and return, which is ignored, do you then assume he longer requires your services on an ongoing basis and therefore archive all his files as effectively dead?
What do you do if he calls you three months later seeking advice on his investments? Do you tell him because he has stopped paying the retainer, you are no longer prepared to spend time talking to him? Or do you, from 2013 onwards, recommend only fixed-term, single-fund products that require no ongoing service, as do the banks? Is that the model the FSA wants to force the IFA sector to adopt?
If the FSA is happy for the cost of implementing a product to be built into what is to be invested into the product by way of deductible customer-agreed remuneration, then why is it insistent that CAR may no longer apply to the cost of ongoing service and reviews?
This system, as far as I am aware, works satisfactorily for the vast majority of adviser/client relationships. The intention, I suspect, is to remove cross-subsidy between those with big portfolios and those with only small ones. However, in the real world, a modicum of crosssubsidy is not something which bothers the vast majority of clients. Most of us, I suggest, do not take the same percentage level of trail on a £500,000 portfolio as we would on a £50,000 one. We discuss and agree our remuneration with all our clients. The FSA’s solution will disenfranchise small investors.
Alternatively, product providers that object to the FSA dictating the terms of their relationship with their supporting IFAs can get authorisation from an alternative regulator that imposes no ban on trail commission.
It will only take one leading product provider to take this step and rivals may follow suit by virtue of the fact they may well see a dramatic reduction of investment money from the great majority of IFAs who presently work quite satisfactorily on the basis of fund based trail commission to cover the costs of ongoing service and reviews. We wait and we watch.
Harvest IFM, Bristol