Aegon is urging the FSA to let trail commission continue post-RDR.
In its response to FSA Consultation Paper CP11/26 Aegon expresses concern that, under one interpretation of paper, the FSA could extend its ban on legacy commission by also requiring trail commission to be turned off if advice is provided after the end of 2012.
Aegon is concerned that activity such as advising on a fund switch within a bond or personal pension could trigger a ban on future instalments of trail commission, even though it wouldn’t normally generate any additional commission payments. The company is worried that, like the ban on legacy commission, any further new rules switching off ongoing commission would go against the interests of all parties – customers, advisers and providers.
Aegon says a ban on ongoing trail commission could discourage customers from seeking essential advice. Customers with existing contracts often currently receive ongoing advice for no extra charge, funded by previously agreed trail commission. If the ban goes ahead, any future advice – even on the existing funds – would have to be paid for by other means such as separate fee.
It also believes that it could deprive advisers of their entitlement to a secure flow of future income to fund ongoing advice. Many advisers have moved their business model away from charging for all advice upfront to one which spreads their charges over the lifetime of their relationship with the client – these firms would be penalised for doing what many see as ‘the right thing’.
Aegon is also concerned that present providers with significant implementation challenges and unplanned costs at a time when major system changes are already underway. Aegon believes any further late changes to the industry’s understanding of FSA intentions could jeopardise the broader RDR delivery.
The company also believes banning trail commission as well as legacy commission would further undermine the validity of the FSA’s cost benefit analysis.
Aegon believes the uncertainty arises from the definitions of ‘trail’ and ‘legacy’ commission in the consultation paper. The company suggests this could be clarified if the FSA adopts a more accurate, and simpler, definition of trail commission as ‘ongoing commission payable in respect of a pre-RDR investment which is not being increased as a result of post-RDR advice’.
Steven Cameron, head of regulatory strategy, said: “It’s clearly in everyone’s interest that existing customers have ongoing access to advice to keep their financial planning on track