The Investment Association (IA) has called for a “renewed dialogue” with the FCA over a possible sunset clause on trail commission.
The trade body has used its initial response to the FCA’s asset management market study to restate the case for a transition away from all legacy payments, saying it has concerns over the co-existence of bundled and unbundled share classes.
The regulator’s study will scrutinise the industry’s ability to provide value for money, and its terms of reference, published last November, also highlighted a “clustering” of annual charges around the 1.5 per cent mark - the typical fee on a legacy share class.
In its comments on the FCA’s terms of reference, the IA said: “The reality is that the legacy share classes reflect the economics of a bundled model (ie incorporating payments to advisers as well as platforms), not the economics of a more expensive fund management offering.”
The trade body continued: “It has not been possible to date to agree with regulators a framework under which fund management companies could act systematically to faciliate the movement of end investors into post-RDR share classes. The reasons for this relate to a number of complexities of the retail distribution chain as well as legalities of unit ownership.
“The IA would welcome a renewed dialogue with regulators to facilitate a process of transition.”
The move is the latest sign that adviser commission payments are returning to the spotlight ahead of the expiry of the FCA’s two-year sunset clause on platform-based commissions in April.
Standard Life Investments (SLI) said last month it would scrap trail commission across its retail business as of March 31, bringing legacy business into line with its unbundled share classes in a move the firm said reflected “the spirit of RDR”.
SLI added the change would see charges fall for 90,000 clients, but the decision attracted criticism from advisers who noted that fees would fall by less than the amount that had previously been paid out as commission.
The fund house said the new pricing for legacy share classes reflected its decision that “the cost of investing charged to retail investors dealing directly with SLI would be the same whether the investor had received financial advice or not”.
Meanwhile, as of April 18 industry data providers will ensure that fund performance figures will, for the first time, relate to the unbundled share class in every case. The change represents part of an IA project aimed at ensuring data reflects the most common experience for end-clients.
