FCA steers away from pre-RDR trail commission ban

The Financial Conduct Authority (FCA) has “no immediate plans” to ban trail commission on legacy investment products, it has announced in a policy statement that looks to shake-up the asset management industry.

FCA steers away from pre-RDR trail commission ban

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When the Retail Distribution Review (RDR) came into force in 2012 it banned trail commission on new products. However, commission is still being paid by investors on advised share products that were bought prior to 31 December 2012.

Following this, the regulator started a consultation process last June on whether it should remove trail commission on share products sold prior to the RDR coming into force.

It has now updated its stance on the issue, saying it received a range of feedback from both sides of the debate during the consultation process.

“We are grateful to respondents for sending us their views, which will inform our wider consideration of trail commission.

“We are still considering the issue and have no immediate plans to bring forward proposals for policy change at this point,” the FCA said.

Asset management shake-up

The decision to not ban trail commission for the time being was part of a wider policy statement the regulator released on 5 April to dramatically overhaul the asset management industry.

In particular, the new rules outlined in the report will require asset managers to make an annual assessment of how their products provide value for the fees their investors pay.

One of the key changes for fund managers is the FCA now requires all asset management firms to appoint two independent directors to their board.

The regulator said the overall support for this change was supportive, however some did have concerns about the costs associated with appointing two directors.

“We recognise that the requirement introduces costs, but believe that overall these are proportionate to the benefits we expect independent directors will bring to the running of funds,” the regulator said.

Industry responds

Kevin Doran, chief investment officer at AJ Bell, said the asset management industry is ripe for change.

“Investors need better choices, better value and better communication from fund providers and so we support wholeheartedly the FCA’s drive to deliver better information and value to investors.

“For far too long, many fund providers seem to have forgotten just whose money it is they manage, hiding behind vague objectives and excessive charges,” Doran said.

Andrew Strange, PwC director, followed a similar sentiment to Doran and said the rules should be welcomed by the industry.

“Delivering value for money for investors has always been a key tenet of the asset management industry.

“Changes to focus on wider value, rather than just charges, will better enable firms to demonstrate this value to their customers, although the new public statements could risk overloading consumers with information.

“However, updating guidance to make it easier for firms to switch investors to cheaper versions of the same fund is an example of the regulator helping firms deliver value,” Strange said.

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