FCA ‘needs to be convinced’ on legacy trail guidance

Advisers may not after all get fresh guidance on the continuation of trail commission after the removal of legacy rebates on platforms after the regulator told FTAdviser it “needs to be convinced” on the case for further intervention on the issue.

Yesterday (7 April) FTAdviser revealed that the subject had been raised by adviser community group Panacea Adviser at a recent meeting with representatives from the FCA, during which the regulator was said to have given assurances it would offer further clarity.

A spokesperson for the FCA had confirmed the meeting took place but initially offered no further comment on what was discussed.

The watchdog has now confirmed that it did discuss apparent confusion among advisers surrounding trail commission, but that it had not offered any pledge to give clarity and that it “needs to be convinced” on the case for further guidance to be issued.

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 the FCA board confirmed it was looking at introducing a formal end date for all legacy commission over fears advisers may be leaving portfolios ‘undisturbed’ to prevent upsetting the revenue stream, to the detriment of clients.

Derek Bradley, chief executive of Panacea Adviser, told FTAdviser that since the meeting, Panacea Adviser has sent two follow-up emails documenting evidence from its survey that showed advisers needed more clarity and detailed what clarifications it thought was needed.

The adviser forum told the FCA the results of its survey of 137 advisers showed that, in particular, advisers wanted to know that the current situation was with trail commission on various product types as well as to get specific definitions of both ‘trail’ and ‘legacy commission’.

Advisers also wanted to know how trail is generally affected by the removal of rebates on platforms on legacy business by April 2016.

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

In particular, Panacea members had asked what products are covered by this, whether there are any plans to include a wider array of products, what strategies and tools advisers can use to cope with the transition, and what is the most compliant way to transition clients to fee models.

Furthermore, Panacea Adviser wanted clarification as to whether the FCA thought the legal/existing contractual agreements between advisers and providers in relation to trail “should be honoured”.

The email to the FCA, seen by FTAdviser, said: “The most productive way we can initially help advisers... is to provide clarity around what it means from the FCA perspective and then from both Panacea and [New Model Business Academy] perspective to prepare their businesses for the future.”

Mr Bradley said: “We said we would be more than happy to develop a guide for the adviser community which they seemed happy with. Since they we haven’t heard back from them to say there wasn’t a need so gathered they were busy putting together clarification.”