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FSA: no plans to ban legacy commission for advisers

by Emma Dunkley on Nov 30, 2012 at 07:50

FSA: no plans to ban legacy commission for advisers

The Financial Services Authority has confirmed it is not looking to impose a ban on adviser commission for advice given before the end of the year.

It also said that its proposed ban on cash rebates paid to consumers, as outlined in its platforms consultation paper, would apply to new business only.

A spokesperson for the watchdog said, despite speculation, ‘there is nothing in our existing or proposed rules which would ban all commission for business written on platforms, including legacy arrangements.

‘Clearly, we have to consult on any new rules before we introduce them. If you look at the platforms consultation paper, it is clear that we have not consulted on these issues.

‘The rules on adviser charges are clear: advisers can continue to receive trail commission for advice given before 31 December 2012. They must be paid out of adviser charges for any new advice, given from that point onwards,’ the spokesperson added.

The regulator also reiterated its broader position on the commission advisers receive: ‘We have no current plans to extend the RDR [retail distribution review] ban on commission for advised sales to non-advised sales, although as we have said, we will keep this under review.

‘In particular, we will look to see if firms exploit the distinction between advised and non-advised services in a way that is likely to lead to poor consumer outcomes.’

The FSA decided to speak out after speculation swirled on Thursday that plans were afoot to introduce a total ban on fund commission payments.

It had been speculated that the City watchdog was in talks with industry players, with its discussions aimed at introducing a blanket ban from 2014. 

3 comments so far. Why not have your say?


Nov 30, 2012 at 10:15

Perhaps a little more clarity at the outset (and a little less "be afraid, be very afraid") would have been desirable.

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Nov 30, 2012 at 11:45

A few market maxims seem appropriate having seen 'speculation/speculated' used thrice in the article;-

"Distinguish if you can between the possible, the probable and the certain."

"Nothing happens unless somebody does something."

"Indecision Depresses and Debilitates

Action is the prayer most likely to be answered

In the Inn of Decision men sleep well"

......I wonder how many are sleeping well in the face of RDR (?)...

A...probably just the compliance personnel!

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Nick McBreen

Nov 30, 2012 at 11:53

Whenever I hear or read comment from a government body or regulatory organisation or high profile individual they are not looking to take action in a certain area, then nine times out of tent it is a clear flag that indeed they are! How many political figures categorically stated that they have no intention of resigning when exposed in the media and hey presto, next day they announce they are stepping down?

The new rules on Adviser Charging are just the tip of the iceberg; just like the Titanic tragedy many people thought their boat was safe and secure and look what sadly happened to them. I suspect that many IFA firms believe that they have a robust RDR ready business model and the financial future for them beyond 2013 looks promising but I suggest they may well be in for a rude awakening.

The next step in the regulatory strategy may well indeed be the removal of all ongoing "fees" or charges/commission , with clients ending up on a pay-as -you -go basis and thus in the view of the regulator suffering no "consumer detriment" by achieving a position where they will not be paying any charge unless the Adviser firm does something and provides a demonstrable service at that moment in time. A laudable aim as imbedded in RDR, but In la la land and the world of mobile phones this may well be the case ,but in the real commercial world the potential imact is breathtaking and risk to client's financial security and Adviser businesses is a real threat. Many clients may well end up with no contact from their Adviser unless they request it and agree the charge at that time--most Adviser firms will be too busy finding new clients to drive cash flow so servicing and ongoing review will cease yet that was one of the key drivers behind RDR--the need for ongoing reviews, Furthermore if the client actually agrees to the review meeting, then the Adviser will have to ensure their charges are sufficiently high to cover all the costs involved in conducting business with the client, as well as the ongoing costs of PI to deal with ongoing liability for the Advice. Of course this assumes that there are any Advisory firms left in business because without ongoing fees or charges for example for funds under management on a platform, then the Adviser business has no recurring income hence no embedded value , profit will plummet and they will simply have to shut up shop. What then for the clients I wonder---ah but not to worry because down the High street the shiny doors beckon with friendly salespeople --oops typo I mean Advisers--who will have just the product for them!

At a stroke , removal of ongoing remuneration for Advisers would turn the financial services business and adviser/client relationship back twenty years, to the old model of high front end charges, no service and flog them a bond and run for home. The financial services sector has made great strides forwards in raising quality and professionalism and value for clients and all this may well be under threat.

If you think this too cynical then just watch what will happen to numbers of people seeking out and taking and paying for Advice in the brave new world post January 1st 2013. The volume of regular premium protection and savings business will fall off a cliff--that will really help address the savings gap and pension crisis in the UK --yet again this was one of the fundamental drivers behind the Retail Distribution Review to get consistency and value for money for the consumer.

Investment business I suggest will suffer a similar fate if the recent research from the likes of Black Rock prove correct and significant numbers of clients reject the fee charging business model and end up taking no action at all.

Were it not so serious it would be laughable. Amazing to see that at the eleventh hour ,some members in the House of Lords have woken up briefly to raise concerns about the potential advice Gap post RDR--apologies to Lord Flight who is the exception and has been sounding the alarm bells for some time but alas to deaf ears.

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