20th November 2011
A trick of the trail
No not the Genesis album but a further unhelpful verbal hand grenade thrown into the room of wounded IFAs.
Andy Maysey, a senior RDR adviser at the IMA told Investment Adviser that the IMA would “promote” the idea of the FSA creating a “sunset clause” that would eventually ban advisers from receiving any trail from pre-RDR business.
This has come on top of the FSA release of CP11/26 last week, a shining light in the quest for delivering documents in Plain English, which is confirming that the FSA would like to see the removal of trail on additional investments made to pre-RDR business.
What is it that the FSA, now joined by the IMA dislikes so much about intermediated distribution and why do they seem hell bent on trying to kill off IFA businesses by way of injecting a regulatory form of HIV Aids that will see the slow and painful death of IFA businesses.
Whatever one’s view on trail commission, it is legally, contractually, regulatorily and morally there to be received. It is no secret revenue stream and it forms the basis of the valuation of all IFA business. In fact for most it is THE value and the result of years of hard work and honest practice. It is part of an IFAs exit strategy toward retirement.
Such a move would render a business built up over a lifetime worthless and unsaleable. It will also cause a few cardiac arrests for those IFAs who have just purchased IFA businesses to gain the trail.
Providers are not left alone in this as they are presented with the problem of administrating the proposal should it go through. With pre RDR business sitting in legacy IT systems, the potential costs are considerable.
The FSA state in CP11/26 that such a move is compatible with the principles of good regulation and that the costs of their proposals are proportionate to the benefits.
Really? Clearly the FSA continues to ignore the Regulators Code and the following points are among its stated aims and intentions-
- To act as an enabler to economic activity.
- To consider the impact that their regulatory interventions may have on economic progress, including the costs, effectiveness and perceptions of fairness of regulation.
- They should ensure that any decision to depart from any provision of the Code is properly reasoned and based on material evidence.
- Where there are no such relevant considerations, regulators should follow the Code.
- They should only adopt a particular approach if the benefits justify the costs and it entails the minimum burden compatible with achieving their objectives.
- Regulators should seek to reward good levels of compliance by way of lighter inspections and reporting requirements where risk assessment justifies this.
They should also take account of the circumstances of small businesses, including any difficulties they may have in achieving compliance.
Under article 53 of the proposed Regulated Activities Order, another perfect example of FSA paradox, giving advice to a client to do nothing in relation to an investment removes the right to receive any trail. But if you are a firm providing discretionary management services under a mandate and make changes to a client’s investment without providing advice you can continue to receive trail.
I, along with many, am almost speechless at what is being done. Why is it that with regulation, everything has a retrospecticve sting in the tail? Why cannot what is in place remain as we march toward the brave new world with a clearly defined route map going forward?
It is vital that you respond to this consultation. Yes it may be pointless but all IFAs and the AIFA should consider this famous text by Pastor Martin Niemoller.
"First, they came for the socialists, and I did not speak out because I was not a socialist.
Then they came for the trade unionists, and I did not speak out because I was not a trade unionist.
Then they came for the Jews, and I did not speak out because I was not a Jew.
Then they came for me, and there was no one left to speak for me."
Though no one can go back and make a brand new start, anyone can start from now and make a brand new ending and it is within your power to see that happen.
The Financial Services Authority invites comments on this Consultation Paper. Comments should reach them by 16 January 2012.
Comments may be sent by electronic submission
Alternatively, please send comments in writing to:
Jenny Frost
Conduct Policy Division Financial Services Authority 25 The North Colonnade Canary Wharf
London E14 5HS
As Dr Seuss said "be who you are and say what you feel, because those who mind don't matter and those who matter don't mind".
Comments (5)
Yet again this seems to be a somewhat hysterical reaction without really thinking the problem through.
Unless it is actually me and not the others please would someone explain why this scenario is wrong:
Starting now you write to all your clients along these lines:
Dear Mr/Mrs Bloggs
You will recall that when we first started investing for you we agreed a fee of x for the initial advice and advised that we would be charging an on-going fee of 0.x% per annum of the value of the funds that we manage for you. Hitherto for your convenience this has been paid by the platform, however we need to clarify the arrangement. You may, if you wish pay this charge half annually in arrear when we provide a valuation, or you may, if you prefer continue to have it paid by the platform.
Would you therefore indicate your choice at the bottom of the enclosed copy, by deleting the option you DONT want and signing and dating at the bottom.
To me that is a fee agreement between the adviser and the customer and the FSA, IMA and everyone else can all butt out.
Norwest 21/11/2011 09:13
From Mr. Southwest (you actualy have forgotten I have changed my name from 1998 when you have seen me for the first and last time)
I prefer not to choose any of the options indicated but to stop all your trail commission. Thanks.'
Edited 1 time(s). Last edit at 21/11/2011 09:37AM by Eugen Neagu.
Eugen Neagu 21/11/2011 09:30
On to my Plan B that has none of this regulation and yet provides residual income for me until I die and then my estate for as long as the customer remains a client. No Ifs, buts or maybes.
The pretence that this business is anything but commoditised is as clear as day.
Anyone interested in my Plan B only has to text me on 07889 693681 or email me at futurepositive@telecomplus.org.uk
Edited 1 time(s). Last edit at 21/11/2011 05:36PM by callomon1.
callomon1 21/11/2011 09:49
If it did actually become a reality it would be THE END for established financial advisory businesses and a major disincentive for anyone to start a new one. Trail is the fuel to help firms through transition. No fuel and the transition journey becomes irrelevant.
It would also mean no need for the FCA as there would be no firms to regulate. Perhaps the last person to leave Canary Wharf can turn the lights out?
cortesin 21/11/2011 11:33
Quoting from the CP on which this comment is based "our trail commission rules confirm that commission can continue to be paid for pre-RDR advice. Trail commission for pre-RDR advice can continue to be paid until it ends naturally (because a product matures or is terminated)".
Furthermore, the CP confirms that where bulk agency transfers take place (e.g. on business sale / retirement) there is no requirement for the provision of ongoing service, as there is for example when an individual client signs letters of authority for the transfer of agency on appointing a new adviser.
I would seriously welcome feedback on how the above translates into "no exit strategy after years of work" and "the end for established financial advisory businesses".
Gillian Cardy 23/11/2011 12:06
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