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Topics: RDR| trail commission| FSA| switching| fund platform| wrap platforms
The Financial Services Authority (FSA) will allow advisers to continue to take trail commission after 2012 on fund switches within life policies set up pre-RDR.
The FSA had already banned 'legacy' commission post-RDR. This sees commission due on assets set up pre-RDR turned off if new advice is provided on the assets.
Commission due on pre-RDR assets where no new advice is given may continue.
But it said there was still confusion among advisers and providers on cases where new advice leads to no changes being made to a product, and where the advice relates to fund switching within a life insurance product such as an investment bond.
It said commission will still be payable on fund swtiches within life policies. However, all other fund switching will not allow commission to be paid, unless the client chooses to do so without advice.
The FSA said: "Given that the trail commission relates to the product as a whole, we consider that the ban on new commission post-RDR does not affect the payment of trail where the product itself is unchanged, with no new money being paid into it."
Having clarified its position on the issue, the FSA has also said it will keep an eye on whether advisers try to exploit the rules to maximise their commission.
"In particular, we will monitor sales pre-RDR to check whether there is an increase in advisers recommending their clients to purchase new products allowing subsequent fund switching within the product," it said.
Today's guidance gives the following examples of cases where a personal recommendation relating to a pre-RDR investment does not lead to an additional investment into the product:
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Hardly...
Hardly level playing field! So fund switches within an investment bond are OK, but not similar switches within a pension or ISA wrapper? That makes lots of sense! Well done!!! And now, the FSA will monitor advice pre RDR to see if advisers recommend products that allow fund switches? Of course we do, it is in the client's best interests to have this flexibility (and I can't think of many policies that don't allow switches!) so why wouldn't we?
Posted by: You Must Be Joking
Crazy
If I understand this correctly, I have clients who I advise to top up their Equity ISA every year. As we only take a small initial commission and a small amount of trail, does this mean that every time we top up we are going to lose previous trail. The only way to overcome this would be to put the new money with a new provider. Treating Customers Fairly. I dont think so.
Posted by: terry
Odd decision but whats the problem?
Don't really see why they've allowed comm on life fund switch rather than ISAs/Pensions. I assume its something to do with initial charge period perhaps?? Anyway, I don't see it makes much difference to ISA/Pensions. One would assume it is just another form for the client to sign to confirm the "Fee" agreed to switch the fund? Why could you not do that for bonds too?
Posted by: Edward Scott
Wake up FSA
Surely the FSA are making this up as they go along. They're dreaming up rules that I doubt they understand. The financial world is struggling to follow and interpret them. What a nonsense that the trail income is swiched off when we provide some previously promised service to our clients. I see a U turn looming, otherwise we're heading for disaster.
Posted by: Bemused
FSA - proving yet again tha it is unfit for purpose
It's becoming increasingly obvious (in case there were any doubt remaining) that the FSA doesn't have a clue. The clients who were properly advised to effect ISAs and OEICS rather than bonds will now only receive switching advice if the adviser is prepared to 'cut his own throat'. Those advisers, including the banks who almost always recommend bonds paying high front-end commission will be able to proffer switching advice in the future and the trail will continue. Not that the banks are in the habit of helping clients to manage their investments once the initial sale has been made and they have taken their extotionate 7%
Posted by: Bill Wells
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As ever the Failed FSA proving that the interference in the spontaneous order of the free market by capricious bureaucrats creates chaos. They'll fail on this as they've failed elsewhere.
Posted by: Steven Farrall