When FTAdviser broke the news yesterday (4 September) that Friends Life is to cease paying trail commission on two of its offshore investment bonds, several advisers understandably said they would avoid doing business with the firm again.
A similar reaction followed news that Standard Life would cut commission on certain legacy products in particular circumstances, specifically when a top-up is made directly by clients to regular premium products, back in March. Standard Life said the move was taken because it was difficult to discern whether a transaction was advised or non-advised.
These instances are not isolated: Prudential for example cut a 6 per cent initial charge on a bond back in February without correspondingly tweaking allocation rates. Such examples reported in the press have been described as the “tip of the iceberg” by advisers on our comment boards.
One particularly incendiary element of these moves is that the regulator knows firms are doing this and seemingly does not care.
Under its Retail Distribution Review rules the watchdog did not require firms to update their systems to handle trail citing the prohibitive costs involved, In fact, it forced advisers to shoulder the burden of a potential ‘double charging’ conundrum that might arise if they levy additional advice fees by saying intermediaries must assess the costs of remaining in a particular product.
We’ve asked before if it fits with Treating Customers Fairly that a client can pay the same fees despite the trail being cut and providers simply pocketing a bigger cut, but it seems the FCA is unwilling to apply that logic here.
Advisers only recourse would appear to be righteous indignation: stop putting business with firms that are refusing to honour the original terms of their arrangement. According to the comments thread on the story, many are planning to do just that.
However, one perceptive commentator asked a very interesting question: can an adviser choose not to do business with Friends Life - or any provider making a similar move - on principle?
This is especially pertinent if an adviser is independent, but applies to all in theory. If, in evaluating the market, you find that Friends Life offers the best product for your client, surely you would have to set aside any personal feelings about the company and act in the client’s interest?
Is there any way around this? Could you tell your client, for example, that the cost of investing with Friends Life might be unreliable?
It might simply be a case of gritting your teeth and going through with business despite feeling like you’ve been trod on by the provider.
The problem of clients being charged twice for advice because providers pull the plug on trail commission is seen as being among the most abhorrent consequences of the RDR. But as noted above, nothing in RDR requires firms to do this and in many cases the contract allows a firm to cut trail whenever they see fit.