Legacy ban could divide clients, Skandia

Peter Mann, chief executive at Skandia UK, said while the firm supported the retail distribution review, he warned it could compel providers to close products and not allow top ups or switches.

He said the ban could divide customers into two categories based on their perceived willingness or ability to pay adviser charges.

In one category would be those unable or unwilling to pay adviser charges being left in existing, potentially unsuitable products, and another where those that can pay could be sold an alternative, higher-cost product.

Mr Mann said: “The cost benefit analysis used to inform the proposal to ban legacy commission is fundamentally flawed because the original consultation to which product providers responded did not propose a ban on legacy commission.

“The RDR consultation paper and resulting policy statement published in March 2010 led providers to believe it would remain possible to pay commission where a product is ‘amended or extended under options available to the customer’.

“Firms responses to the consultation obviously reflected this understanding and therefore the significant cost implications and adverse customer outcomes of such a ban were not brought to the attention of the FSA at the time the rule was made.”

He said it was disappointing that the FSA was consulting on how to implement the ban rather than the ban itself, adding: “An outright ban on legacy commission is not in the best interests of a large number of customers.

“It will force the hand of product providers who do not have time or resources available to adapt their systems in time for the RDR implementation date.”