Regulation 

FCA pledges to provide clarity on legacy commission

The Financial Conduct Authority has pledged to provide clarity on the continuation of trail commission on pre-2013 product sales and the consequences of a formal end date being introduced, following a meeting with adviser community group Panacea Adviser.

Trail commission on ‘undisturbed’ legacy business has remained a contentious issue in the 15 months since the Retail Distribution Review came into force.

Last summer minutes from an FCA board meeting confirmed it was looking at introducing a formal end date for all legacy trail amid concern that ‘anti-churn’ could cause consumer detriment.

At a recent meeting between with the regulator, Panacea Adviser discussed issues related to legacy commission and potential ‘unintended’ consequences if it was completely switched off. Mr Bradley said the regulator pledged to provide clarity around “a number of issues”.

A spokesperson for the FCA confirmed the meeting took place but would not comment further on what was discussed.

A recent Panacea Adviser survey among 137 advisers revealed confusion in the market over trail commission rules, with many believing trail commission will be switched off throughout the industry from April 2016.

This is the deadline for rebates from providers to cease paying rebates on legacy business to platforms. As trail commission was often paid from these rebates, this will effectively end much of the trail paid on platform-based sales.

The majority of advisers, just shy of 80 per cent, said they are confused about the requirements for removing trail commission. In particular one adviser wrote clarification is needed as to what type of policies this applies to.

Responses to the survey also indicated some advisers remain concerned over the effect removal of trail would have on their revenues. Commentary on the issue has in turn focused on the effect this will have on advisers seeking to sell their business.

One adviser comment on the survey said: “Trail commission is a bit of an unknown. Not sure what will be stopped and why.”

Another adviser said: “I am ready for platform trail being switched off. However, if this was extended to all legacy trail (e.g. investment bonds) then I would have a big problem.”

Panacea Adviser asked whether the end of trail will enhance clients’ outcomes, to which some 90 per cent of advisers answered ‘no’.

Speaking to FTAdviser, Derek Bradley, chief executive of Panacea Adviser, said: “The outcome [of the meeting] is that the FCA would look to provide clarity around a number of issues related to trail commission in order that Panacea can then develop a guide for it’s community.”

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