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16 August 2011

Citywire: Providers warn legacy commission ban will double RDR cost


The Financial Services Authority's (FSA) hard-line approach on legacy commission could double the cost of the retail distribution review (RDR), according to Zurich.

Rival life companies have pitched in with equally dismal forecasts as they lobby for a reversal of the RDR’s ban, which will prevent the payment of commission on new contributions paid into legacy products. They have warned this could force the closure of products to new premiums. The regulator announced earlier this month it would launch a two-month consultation on its plans.

Matthew Connell, principal for government and industry affairs at Zurich, said the upheaval the measures would generate, combined with a lack of time to enact them, would ultimately hurt consumers. "The FSA did a request for practical implications, and firms across the piste gave those kind of figures back that you would see a doubling of costs [for the RDR]", said Connell. "Another issue is the time scale. We are less than 18 months away from RDR, and making the changes to all the systems may be so difficult that the only solution is to close off top-ups altogether."

Skandia has already called for a five-year sunset clause for legacy commission. Connell argued enhanced disclosure could solve the problem: "The FSA has enhanced the disclosure requirements on protection products so consumers know what they are paying and what kind of services they are receiving. We think a similar solution could be developed for top-ups for legacy products", he said.

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