Financial services firms have differed in their course of action concerning trail commission leading up to the 2016 deadline, varying from immediate elimination to holding on to trail until the bitter end.
On 7 August, Scottish Widows announced that initial commission on all new and existing corporate pension products will be cut off as of November 2014, followed by implementation of a 75 basis point cap in April 2015 and removal of all ongoing trail commission payments as of April 2016.
Standard Life also ended trail commission on all legacy products for adviser clients in 2013 even where a new transaction is non-advised, as it claimed that the costs incurred in the process of deciding whether a transaction is advised or not is prohibitive.
Aviva stated in May this year that it would discontinue payment of initial commission to advisers on company pension scheme business from the end of 2014, although it would continue with trail commissions until 2016.
Skandia said last year that it would keep trail commission until at least 2016, reasoning that it was funded by the rebates that Skandia received from fund groups. Advisers were informed by the company that only Isa and collective investment account products on its platform would be affected by the FCA’s ban on rebates, while pension and bond products would not.
Allan Maxwell, independent financial adviser at Corporate Benefits Consulting, said, “I can understand the need behind the forthcoming ban, but a blanket ban seems a bit unfair. The problem is that some advisers are doing what they said they would and are being penalised for those who aren’t. We need a system that recognises this difference.”
The RDR requires all firms to base their charging structure on the type of clients they see and the needs of the company, and insists advisers focus on the level of service they provide and the outcome for the client when establishing charges.
Matthew Smith, managing director at Buckingham Gate Chartered Financial Planners, said, “Overall, I think the changes to trail commission are a good thing. The changes made in the RDR will help to improve charging transparency.
“There is, however, the issue of unintended consequences. Trail commission is a source of income for many firms, especially old firms. Some advisers are concerned about losing relationships with clients that they have built up over the years, as the ongoing service with the fee provides a means of keeping in touch.”
julia.faurschou@ft.com
