FCA looks at ending legacy trail commission

FCA looks at ending legacy trail commission

The FCA has called for input on whether it should consider introducing a sunset clause on trail commission following the findings of its asset management market study.

The regulator said in the study's final report, released today (June 28) that a number of respondents had called for a sunset clause - a move fund managers said would enable them to "put all customers in the cheapest share class".

A sunset clause for on-platform trail commission came into force in 2016, but a significant volume of off-platform investment business continues to be bound by similar arrangements. In such cases, investors remain in pre-RDR share classes paying commission to advisers, either because they no longer receive ongoing advice or because those legacy investments are still considered to be suitable.

The FCA said in the interim report of its market study, released last November, that it had "no plans" to revisit its policies. But the regulator has now opened the door to further action and called for responses from industry participants.

"In order to consider some of these issues further we need to be presented with clearer evidence of harm," it said.

"Some firms have also told us they fear advisers will not recommend them for future clients if they unilaterally switch off trail commission."

"On the other hand, we recognise that re-opening a debate around payment of trail commission could have a significant impact on the advisory market.

It added: "Stopping the payment of trail commission could have a significant impact on the product providers, and particularly on self-employed advisers who rely on that trail commission for future income. We welcome information from advisory firms and asset managers to better understand this issue."

The watchdog will now collect more evidence on whether it should stop on trail commission payments, and if so over what time period.

It will also ask at whether contractual arrangements prevent firms from switching off trail commission as it stands, and what effect a sunset clause would have on trail commission for other products.