FAQ – Pre-RDR trail commission
The FSA has finally published guidance on how commission will be paid to financial advisers post retail distribution review (RDR).
The full guidance is complex and lengthy – and can be found here [link: http://www.fsa.gov.uk/static/pubs/policy/ps12-03.pdf ].
Basically any ‘steering advice’ is an intervention that cancels pre-RDR commission.
Think any statement that starts “I recommend you do or do not…” is steering advice.
To help, here are some quick answers to some of the frequently asked questions about post-RDR commission:
What happens to trail commission?
Paying commission on retail investment products is banned from January 1, 2013 – but trail commission pre-RDR products that continue without new advice after that date pay trail commission as usual
What happens if new advice does not change the product?
The commission continues providing you can confirm you have discussed the product with the client, but no change was forthcoming
What about switching funds in an existing product?
More difficult – the answer appears to be that switching funds within those offered by a provider mean no change for trail commission, but switching providers cancels the commission.
What about topping up a pre-RDR product?
The rule is no commission on post-RDR products, so the pre-RDR commission continues, but the post-RDR top-up does not pay commission. The same applies to increasing a monthly contribution.
However, advisers should tell the client that commission is paid on the pre-RDR product and explain why that product is better than any post-RDR product that does not pay commission.
Can commission and charges be simplified for clients?
Yes. Post-RDR, an adviser can charge for advice and rebate any commissions to the client. This is also a way to show the FSA that you are providing a service against receiving payment when a new client joins your list.
How should advisers evidence advice?
Keeping accurate and contemporaneous file notes is vital. Advisers need to confirm whether they are giving advice on pre-RDR products – not least because the FSA will scrutinise advisers advising clients to retain commission paying pre-RDR products without good reason.
Tags : RDR, FSA, Trail commission, financial advice, financial advisers
Categories: Compliance, Financial Advisers, RDR, Regulation