This Policy Statement reports on the main issues arising from Consultation Paper 11/26 (Distribution of retail investments: RDR Adviser Charging – treatment of legacy assets) and publishes final guidance on how the regulator will keep tabs on legacy commission post-2012.
The Policy Statement (PS) gives feedback on the responses to CP11/26 and explains the approach the FSA has adopted in the final guidance on the treatment of legacy assets, which is contained in Appendix 1.
Background
The final rules on adviser charging under the RDR were published in March 2010, in Policy Statement (PS) 10/6. The adviser charging rules are contained in new sections 6.1A and 6.1B of the Conduct of Business sourcebook (COBS) and an important element of the new rules is a ban on firms receiving or paying commission in relation to personal recommendations to retail customers on retail investment products. These RDR rules will apply to advice given on or after 31 December 2012.
The issue of how to treat legacy assets is not relevant for group personal pension schemes (GPPs), as the rules in PS10/10 on consultancy charging allow additional commission to be paid after 2012 for pre-RDR schemes, where new members join the scheme or contributions are increased for existing members. Commission cannot be paid for schemes set up post-RDR, irrespective of whether or not advice is provided.
In response to queries on how the ban on new commission will affect the continued payment of trail commission on pre-RDR assets, the FSA published CP11/26 in November 2011, with draft guidance on whether there has been a personal recommendation in various situations. The FSA received around 80 responses to the CP. Many of these asked for additional guidance on how the adviser charging rules interact with the rules we made in September 2011 confirming that trail commission can continue on pre-RDR assets and laying down requirements for re-registration of trail commission where a client chooses to move to a new adviser.
The final guidance in Appendix 1 has been extended to include guidance in COBS 6 on the interaction between the rules on trail commission and adviser charges.
Monitoring the implementation of the new rules and changes in the market pre-RDR
As part of the FSA's supervisory work it will review the implementation of the new adviser charging rules, and will also monitor changes in the market leading up to the implementation of the rules at the end of this year, such as significant increases in the sale of particular products that could indicate non-compliance with the rules on suitability and the client’s best interests. Once the RDR rules have come into force, the FSA will take action if it sees firms acting in a way that could lead to consumer detriment; for example recommending retention of higher charging products so they can continue to receive trail commission. The FSA will also monitor the overall level of trail commission in the market, to check whether it is reducing or remaining at current levels.
Equality and diversity issues
As noted in CP11/26, the FSA has assessed the equality and diversity impact of its proposals and does not believe that they will give rise to any issues. Respondents to CP11/26 did not comment on this point.
Structure of this PS
The PS chapters cover:
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Chapter 1 – overview;
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Chapter 2 – summary of feedback to CP11/26 and the approach the FSA has adopted in the final guidance on the treatment of legacy assets; and
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Chapter 3 – cost benefit analysis.
The guidance in Appendix 1 will come into force on 31 December 2012, at the same time as the main RDR adviser charging rules.
See also IFAOnline article, 27 February 2012: Ten need-to-knows about the trail commission rules, © Incisive Media Investments Limited 2012.
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