Amateur dramatics aside, this is a big issue and now the consultation period is finished, advisers and product providers alike will be awaiting the FSA’s policy statement, due before the end of Q1.
Today the IMA published its comments on legacy business (presumably it got them in before the closing date yesterday, but it wouldn’t be the first time the FSA has given the trade body an extension) saying there was still work to be done to clarify the treatment of these assets.
This much is certain, and hopefully the FSA will clear the matter up sooner rather than later.
In its original paper the watchdog said it had received queries on how the ban on new commission would affect both trail and legacy commission.
The consultation on trail commission was conducted in October 2010 and final rules were put in place in November last year.
Meanwhile, the consultation on legacy commission continues and the FSA said it has done its best to "avoid confusion between the two".
It is doubtful whether investors will always know the difference between the two though, particularly as the FSA admits in its paper that “trail commission and legacy commission have been given different meanings in other contexts”. Hardly ideal, is it?
Meaningful definitions
If an industry-wide consensus on these terms cannot be arrived at, then regardless of what the rules end up stipulating, one of the main aims of RDR will have failed – clarity for the end investor, but also for those involved in financial services.
What’s more, if a ban on legacy commission takes longer to implement than the ban on regular commission the resultant two-tier system will give no genuine clarity.
This is what Mike Kellard, CEO at Axa Wealth has argued throughout the debate: "I believe the longer we continue with this optionality, the more detrimental it will be to customers. The fact remains that the sooner we move to a system free of commission, upfront, legacy or trail, the better the overall outcomes will be for consumers."
The IMA echoes Kellard’s sentiments, with Andy Maysey, senior adviser on retail distribution at the organisation saying: "We urge the FSA not to veer too far from its initial proposals as many firms have already invested considerable time and money preparing on the basis of its previous statements about the legacy book.
“Indeed the FSA has been insisting for some time that firms should be well-advanced in their preparations. Any significant divergence from previous indications by the FSA about its approach will make implementation by 2013 unrealistic and add yet further costs."
Are providers and advisers who say they will struggle to adapt their models by the end of this year genuine? What do you think about trail commission, legacy commission and the clarity of the FSA’s proposals? Let us know below.
