FSA’s legacy commission ban may mean that advisers have to consider switching customers to cheaper products
Advisers will need to change business models to take account of quicker end to trail commission
27 February 2012
FSA proposals to ban commission on advised top-ups and increments by the beginning of 2013 will force financial advisers to overhaul their business models, according to Deloitte, the business advisory firm.
A legacy commission ban as detailed in the FSA’s Policy Statement (PS11/3) including feedback on Consultation Paper 11/26, being introduced as part of the Retail Distribution Review (RDR), will mean:
Andrew Power, lead RDR partner at Deloitte, said:
“When an adviser sees a client after RDR it is likely that they, acting in their client’s best interests, will need to review the client’s entire investment holding and recommend that the customer switches from expensive legacy contracts into cheaper, more keenly-priced factory-gate priced contracts.
“This action may be in the client’s best interests but it may have a huge impact on the business models of advisers and product providers. The result could be that the industry moves away from commission faster than initially anticipated. Revenues from trail commission will quickly fall away and adviser firms will have to review their business models. This creates a risk that some advisers will not go back to existing customers for fear of forfeiting a historical income stream.”
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