Skandia says that introducing a ‘sunset clause’ on legacy commission would allow the industry to make a more orderly transition to adviser charging.
The clause would allow advisers to continue to receive legacy commission for a period of five years, but once that time period is up, legacy commission would cease.
In March, the FSA sent a letter to trade bodies clarifying that legacy commission will be banned post-RDR, as opposed to trail commission brokered pre-2013 which will be allowed to continue. The FSA defines legacy commission as additional commission payable under a contract signed before December 31, 2012 but as a result of an event that takes place after that date.
Skandia believes the FSA is now looking at creating a distinction between insured and non-insured products, where insured products can continue to pay legacy commission post-RDR. It suggests this would create an uneven playing field and could lead to a bias being retained in the system.
The provider warns the FSA’s legacy commission rules would be “impractical to implement” and have “unintended adverse consequences”, including increasing the cost of RDR implementation for firms.
Skandia UK chief executive Peter Mann says: “Our view is that the RDR aims of fairness, clarity and consistency will actually be better served by a pragmatic decision to apply a ‘sunset clause’ to the payment of legacy commission. Allowing legacy commission to disappear over an extended period, rather than in haste, will enable the industry to make a more orderly transition to adviser charging.”