This week FTAdviser sister publication Money Management reported on when providers are planning to switch off commission trail, following Scottish Widow’s announcement that initial commission on corporate pensions will be switched off from November this year.
Providers have imposed a range of deadlines, largely based on their own desire or ability to update maintain sysems: Standard Life for example controversially turned it off last year. Aviva and Skandia have announced they will keep trail until the bitter end.
All trail commission will be switched off for platform business and corporate pensions from April 2016.
A common view held by financial advisers is that trail commission is being banned across all products at this time. This is not the case and the FCA has confirmed time and time again that it has no plans to introduce a blanket ‘sunset clause’.
However, the regulator does expect that with advisers’ new fee models it will eventually be phased out. Most informed commentators suggest the aforementioned reticence to continue with different systems and movement to platforms will make the April 2016 date a cliff-edge.
The question is what effect will this have? Some advisers still report peers being sustained by legacy trail income and ill-prepared for its loss - though few admit to being in the position themselves, of course.
This morning we carried a story based on an interview with Sheriar Bradbury, founder and managing director at Bradbury Hamilton, who said a recent and ongoing lull in advisers seeking to sell their business would change as the trail turn-off approaches.
Some advisers are angry that providers are effectively reneging on their contractual promises, but anecdotal evidence suggests there is little to be done. Advisers simply need to be prepared.
Problematic PII
This week FTAdviser was contacted by a financial adviser facing another major issue that is coming increasingly to the fore: he is struggling to get professional indemnity insurance cover.
There are only a handful of operators in this market now, which means that they have the monopoly. They are like service stations on the M25: they can charge as much as they want as they know you have no choice.
This adviser was struggling to get cover due to his business being based around providing unregulated investments for sophisticated, high net worth clients. He believed that insurers were not taking into account the advice process, it was more a ‘computer says no’.
One PI insurer Axa said what many suspect, that the issue is in part because of the Fos’s stance on complaints. It doesn’t matter if the advice is quality, it is about the product and the Fos will never support an adviser that recommended a Ucis.
Another insurer, a new entrant to the market, is trying to blaze a trail by focusing on processes over product. I wish them all the best.
Providers have no choice
Another story that garnered a lot of attention this week is Legal and General reversing a decision to block a pension transfer to a scheme which may be a pension liberator.
L&G changed its stance on this six months after it had initially blocked the transfer. What choice did they have?
Adrian Boulding, pensions strategy director at L&G, previously told me that insurers were caught between a rock and a hard place. He said that insurers can by low defer pension transfer requests for up to six months where they suspect a pension liberation fraud, but after that the position is grey.
If providers do transfer the pension, and it turns out to be a liberator and the client is hit with penalty taxes and charges, the consumer may come after the provider. If the provider refuses to transfer, the consumer may come after the provider.
This is a no-win situation and is is one reason why some in the industry are waiting with bated breath to see what the upcoming pension liberation decisions from the Ombudsman.
In June, the Ombudsman said the outcome of around 45 pension liberation complaints will be published in July, a two-month delay on its original estimate. However we are now in August and nothing has been forthcoming. The number of decisions is now thought to number more than 80.
Consumers are gaming it too
FTAdviser also published this week an interesting video interview which revealed that it is not brokers who are often found attempting to ‘game’ the new mortgage regulatory system, but consumers.
FTAdviser has previously reported on one case involving a broker who was removed from Lloyds’ panels for knowingly submitting buy-to-let mortgages for residential buyers. Experts, including lenders, said the practice is on the rise.
However, Lloyds Banking Group said that advisers had been helping to police applications and that most of the cases the bank is now seeing involve a borrower seeking to “hoodwink everybody”.
Buy-to-let does not fall under the MMR as it is regarded as commercial lending. We have all heard stories of how intrusive lenders are now when questioning potential lenders - do you eat steak, do you eat out etc - so it is little surprise that many are trying to get round the rules.
This could all be fixed, if buy-to-let, was regulated too. As we all know, it’s not just professional investors who are buy-to-let investors but the average man on the street.
