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Aifa: Switching within product should not affect trail

The Association of IFAs has called on its members to respond to the current consultation by the Financial Services Authority on adviser charging and support its stance that trail should continue to be paid until a product matures, or is otherwise terminated by the client.

The consultation, called ‘RDR Adviser Charging - the treatment of legacy assets’, was launched in November 2011 and closes on Monday (16 January).

Stephen Gay, director general of Aifa, said that while it was previously established that existing trail commission will continue post-Retail Distribution Review until a product matures or is terminated, at present it is not clear what constitutes termination and what is merely switching within a product.

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Many advisers and providers have voiced concern over the lack of clarification on how legacy assets and related commission will be dealt with post-RDR, with many citing it as the key risk area in the new rules.

Speaking to FTAdviser, Herman Sandrock, head of propositions at Sanlam, said that it was important that the Financial Services Authority keeps it “simple” with legacy commission, adding that top-ups to investments or premiums would provide a major “challenge” to resolve.

Mr Gay said: “Aifa strongly believes that a distinction should be drawn between switching within a packaged product and switching between products.

“If switching leaves a product intact and fundamentally unchanged, for example after rebalancing within a pension, we believe that trail commission should continue because that product sold pre-RDR remains.

“How FSA makes this judgement could have a big impact on members and their clients.”