In its response to the FSA’s consultation on the treatment of legacy assets post-RDR, the IMA said there remained a lack of clarity on when commission can and cannot be paid for legacy business and said guidance should be pointed about which party was responsible for instructing commission to cease.
Back in November the FSA published its consultation on the treatment of legacy assets and invited comments to be submitted by 16 January.
By legacy assets the FSA means retail investment products purchased by a retail client before the RDR rules come into effect on 1 January 2013 and which the client is still holding when the rules are in force.
The subject of legacy commission has been one of the most controversial in the many debates surrounding RDR, with some providers with large legacy books of commission-based business claiming their customers may suffer if they are forced to close all legacy products to increments.
They have also said they do not have enough time to get RDR-compliant.
People on the other side of the debate, such as Mike Kellard CEO at Axa Wealth, argue any delay on the ban of legacy commission would be confusing for investors as a two-tier system would be in place, and this would negate one of the main benefits of RDR: clarification for consumers.
Sunset clause a must
On its part, the IMA said it has consistently urged the FSA to introduce a sunset clause, after which commission payments would cease. It said the alternative meant investors could be left in unsuitable investments indefinitely while advisers continue to receive commission.
A potential difference in the treatment of investments held within wrappers and those held directly is also a cause for concern, the IMA said.
"Under current proposals, in a number for circumstance investments within a wrapper can change, but commission will continue to be paid because the wrapper has not changed. In contrast, any change to a direct investment immediately ends commission payment.
“The IMA has concerns that this will encourage the sale of wrapped products even where they are clearly not the best option for the client," the IMA’s statement said.
Andy Maysey, senior adviser, retail distribution at the IMA, concluded: "The FSA needs to do three things: provide practical examples of what is classed as legacy business to cover a number of common scenarios; make it clear where the responsibility lies to determine when commission can continue; and create a level playing field across all products. To implement RDR effectively and in the interests of consumers, there should be no grey areas."