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Who is still paying trail on reinvested income?

FSA building: The regulator classifies reinvested income as a non-advised action.

Kames Capital says it will continue to pay trail commission on reinvested income related to pre-RDR advice, despite many of its rivals cutting off the payments.

Under RDR rules, reinvested income is classed as a non-advised action, meaning providers are still able to pay advisers commission on the reinvestment post-RDR, as long as it relates to advice given before the RDR deadline.

However, a number of asset managers are cutting off the trail on this part of the investment, blaming the costs of associated with system changes.

Ignis Asset Management, Jupiter Asset Management, Artemis Investment Management, Henderson Global Investors and M&G Investments have stopped paying trail on income reinvested since January on pre-RDR business. All five use fund administrator IFDS.

Jupiter says the costs of allowing trail on reinvested income are prohibitive. A spokeswoman says: “We considered this issue very carefully together with other asset managers using the same administrator. However, our analysis showed the impact on our clients would be minimal, and given that the cost of developing the system to cater for these payments would be significant, decided against proceeding.”

An Ignis spokesman says: “We outsource our administration to IFDS and in line with other asset managers using that administrator we are following suit and not paying trail commission on reinvested income.”

Henderson says the “extra” revenue that would otherwise be paid to advisers as trail commission will go back into the fund to “help lower charges and costs”, although other groups have not offered this commitment.

Kames Capital uses BNY Mellon as fund administrator across its business. A spokesman says: “We continue to pay commission on income reinvested across our range of income funds post-RDR”.

Other major fund groups including Standard Life Investments, Schroders, Axa Investment Managers and Fidelity Worldwide Investment say they are unaffected by the issue due to their use of accumulation units where income is automatically reinvested.

Highclere financial planning partner Alan Lakey says: “It seems to be okay to issue new terms of business at any time to advisers. This may be okay for new business, but quite wrong for any company to change the terms for past business.”


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There are 2 comments at the moment, we would love to hear your opinion too.

  1. How is it pre RDR trail commission on reinvested income wasn’t prohibitive?

    Along with companies like Standard Life some fund managers are filling their boots post RDR.

    And what the FSA/FCA do – nothing.

  2. One of the RDRs aims was to destroy the IFA sector, of which many businesses sale value was directly linked to the payment of trail and renewal commissions. The FSA could not be seen to be destroying the re sale value of IFAs businesses so they have set up such a system that in fact the providers are doing it for them, however insiduously.

    Does anyone really believe the ban on initial commission payments for investment product sales (and I use this term deliberately as nearly all investments are sold, not simply bought off the shelf) wouldn’t be closely followed by the erosion in trail and renewal commissions?.

    In the next two years we will see a definite consumer detriment as a direct result of RDR because those who may be able to extract vaulue by selling up will increase and thre will be fewer viable IFA practices and networks.

    It is already happening folks and when it does there is no going back.

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