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Trail go-ahead on fund switch in life products

Trail commission will be allowed to continue on fund switches within life products despite the Investment Management Association arguing the move will create market distortion.

The FSA policy statement on the treatment of legacy assets this week says trail will continue for life products that allow fund switches, such as investment bonds, following changes to underlying funds. It says: “Given that trail commission relates to the product as a whole, we consider the ban on new commission post-RDR does not affect the payment of trail where the product itself is unchanged, with no new money paid into it.

“The data available so far does not show an increasing trend for advisers to recommend that clients take out life products allowing fund switching, such as investment bonds.”

In response to an FSA consultation paper in November, the IMA argued it would create an “unlevel playing field” if trail was allowed for switches within life products but not for switches outside those products.

IMA director of authorised funds and tax Julie Patterson says: “We are very disappointed the new guidance expressly allows investments underlying a life product to change and not be subject to the new RDR rules, even where new advice has been given. This will lead to distortions in the marketplace, about which we have consistently raised concerns.”

Aifa policy director Chris Hannant says: “We had previously established that existing trail commission, after 2012, will continue for firms until a product matures or is terminated. However, it was not clear what precisely constituted termination of a product and what was merely switching. We are pleased the FSA has responded to our calls for greater clarity.”

Association of British Insurers director of financial conduct regulation Maggie Craig says: “We are pleased the FSA has listened in making a clear distinction between arrangements set up before the RDR while banning new additional commission payments from 2013.”


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