4th April 2014
Trail matters & FCA meeting
Following our recent survey on trail and the snapshot poll we did late last year, I can report that we have now had a meeting with the FCA to discuss adviser concerns.
The meeting took place with Clive Gordon- Head of Investment Advisers & Platforms Supervision, Richard Taylor- Savings, Investments & Distribution Policy, Risk & Research and Michael Newton from the Long Term Savings sector.
It is interesting to note that Richard is tasked with looking at unintended consequences of RDR. He did a lot of writing during the session.
From our corner, we had Garry Heath, Lee Travis from NMBA and Sarah Paul and myself from Panacea Adviser.
Sadly we only had one hour of time allocated by the FCA but I do believe we did get some of their attention around a number of key issues. I attach a copy of the mail I sent to Clive Gordon that will assist in ensuring that as many concerns as possible can be looked at.
In particular we wanted to ensure that there was a clear understanding of what trail actually is, what it means and why it is so important, especially to firms with many years in business.
We wanted to ensure that trail from legacy products was not removed and that some clarity was given around this subject as it is the view of many that it is only a matter of time until either the regulator or the providers remove this.
The FCA sees trail as being something that should see an ongoing service, this is not necessarily contractually the case with legacy trail, especially where firms did not take initial commission although some purists may take a very different view.
It would be fair to say that many of the possible consumer detriment issues we highlighted had not been seen until now. Neither had the impact that removal may have on the viability of adviser businesses as well as the almost complete destruction of embedded value being amongst them
Garry made some very powerful representations based on his current and past experiences and was rightly critical of APFA, who many see as not having stepped up to the plate when it was most needed.
Strangely, the FCA don't believe it is their responsibility to help advisers communicate to clients the impact of regulatory change but accept they need to more clearly communicate to advisers and accept that there can be confusion with clarity of some of their communications with the caveat that some empirical proof should be provided where possible
We agreed a number of steps need to be taken, Clive was very keen to make the point that the FCA was not about to unravel RDR, and that they would not guarantee that they would make any changes in regard to concerns around trail removal…… but they did say they would listen, and would want to meet with us again on a regular basis.
And that is a starting point.
They also made it clear that they want to move away from FSA way of doing things.
Actions to follow will include working with the FCA to create an adviser guide around trail matters, because trail matters a great deal.
Comments (10)
The main point I see is that the removal of trail from investments leaves clients still paying the same AMC but now having to pay a fee on top - this is surely a major consumer detriment.
If we have to cash in bonds, many of which are under trust, to move to a new clean cost bonds there will be taxable gains payable which again can not be beneficial for clients
If insurers do not reduce AMCs under existing plans to compensate for their not paying trails then the only winners will be the insurance companies - with adviser firms struggling to replace lost clients to whom they have to charge more and, as your article said, the remaining firms having to pick up more and more of the tab.
Mark Cooke 07/04/2014 09:27
Frankly if the FCA chooses to pull the rug out MY only choice is to roll over. No doubt they can then roll me up in the rug and dump my body on the tip! Certainly I will have to sell my home and live extremely frugally, having given up initial commission (which could have funded my pension) in the interests of a long term service arrangement with my clients.
I am unable to change from Trail to Fee because I am not authorised and cannot charge fees.
But regular readers will have heard these comments before. Is it possible that I could write to one of those at the meeting to make them aware of my points?
Grosvenor 07/04/2014 10:39
We were pleased that we highlighted many unintended consequences.
Derek Bradley 07/04/2014 10:42
My point is that we are arguing about the details when we should be arguing about the very existence of a constitutionally corrupt regulatory system. As it stands it has no democratic, legal or financial accountability and none of its apparatchiks have any skin in the game.
We have been suckered into constantly rearranging the deck chairs on the Titanic.
Oh, and like all centrally planned Great Ideas the RDR will fail - even more.
Steven Farrall 07/04/2014 12:23
In Mr Cook’s case he surely must know of adviser charging and the fact that all platforms will facilitate this.
As far as Grosvenor is concerned I just think his position is indefensible. He says that he is retired yet continues to bleed his clients with trail commission.
1. How is this achieved – as commission is now banned?
2. Does he expect the Chartered Firm to charge a Funds Under Management Fee and pass the proceeds to him?
3. He may think he is justified in making this charge, but it means that the Chartered firm will no doubt take their cut as well as paying him (for actually doing nothing), thereby increasing the cost to the clients. I wonder how the Chartered firm squares this with their Ethical obligations?
4. If Grosvenor was so lax (or daft) not to have made proper provisions for his retirement, that is his lookout, but to assume that you can continue to make a trail charge (or any charge at all) to clients without actually doing anything for it, speaks of a mind-set that is decidedly odd. He could just have sold his practice – even on an earn out basis – which at least is a more honest way. That he didn’t charge his clients an upfront fee in the first place makes one rather suspect that he didn’t really fancy being open and explicit about his charges.
Harry Katz 07/04/2014 15:20
"The main point I see is that the removal of trail from investments leaves clients still paying the same AMC but now having to pay a fee on top - this is surely a major consumer detriment."
For most platforms I understand this has not has been the case. After RDR became effective if trail was switched off for example from a fund switch then the client will either have bought a clean share class with a lower AMC or a dirty share class where trail is rebated into the fund in the form of extra units. The only disadvantage is with the latter a tax charge is made on the rebate if it is into an unwrapped fund, i.e. outside an ISA or pension.
Michael Grant 07/04/2014 15:50
I would be therefore be delighted if I can simply reduce the AMCs for clients on existing bonds without incurring any tax charges or risk of losing pre 2006 trust benefits. Please let me know if other firms have done this under these circumstances and how?
My point was if this can't be done, the trail stops and AMCs stay the same, I have to charge the client extra to replace the lost trail. This will then be at extra cost to the client for no additional benefit and thereby a detrimental consumer outcome is the result of the FCA's proposed action. Just wanted the FCA to be aware of this.
Mark Cooke 08/04/2014 12:28
Ah! That explains a lot. If you will deal with one of the most venal life office that is the inevitable result.
Their TCF record takes some beating - for not being TCF! You can go back to the Mick Newmarch days "We don't have pension transfer problems". Or fast forward to this month when the Pru is practically alone in wanting to provide retirement advice for those vesting their pension instead of referring to an independent third party.
I make no accusation to you, but it is known that the Pru offered amongst the highest rates of commission for their lacklustre products - particularly bonds.
They might be big, but they are a long way from 'good'.
You now reap what you have sown. A shame.
Harry Katz 16/04/2014 18:46
The charging structure gave advisers a choice of a higher level of initial commission or lower initial commission and a trail commission. There was much comment and encouragement aimed at advisers to future proof their business and create a source of value in their business by switching to lower initial and trail. Some personal pension plans offered the adviser the same choice.
The trail was not for providing a service but was a deferred payment of initial commission that did not impact the charging structure of the bond. It contractually belongs to the adviser firm and no one least of all the regulator should be trying to switch this off for all the valid reasons that have been identified.
Trail on unit trusts, OEICS, etc is a different matter. That trail is paid for by a specific sharing of the AMC and is a payment for a service. Where the service is not given it is reasonable that the client should be able to switch that off and that is what adviser charging facilitates.
However, once again, there are very many clients who would have been fully explained the charging structure, who will not remember it now and who, if the regulator enforces a switching off of trail commission, will give their advisers an enormous workload to re-establish the payment system for the service they are providing. I for one do not see the cost benefit and can see no reason why the regulator, having changed the rules from 1st January 2012 should not allow natural attrition to do its job.
A Johnston 17/04/2014 10:11
Although the Pru is amongst the worst they just sit above what I consider to be a pile of manure. Those under them don't exactly fill me with admiration, or ever have.
Indeed I cannot understand those who profess admiration. I just look at what they have been doing over the past 30 years and can find no reason to be complimentary. (With a very few notable exceptions).
The notable exceptions now allow adviser charging and it is possible to steer round the problems with a decent life office. In this case Skandia stands out as honourable.
Anyway way I don’t see such a problem. Pre RDR you could get terrific enhancements (up to 105% for a nil commission contract. So you charged a fee of (say) 3% the client was still quids in. If trail stops, I don’t see a problem writing to clients to remind them that they had originally agreed that you took trail. Now that things have changed, you will be asking them to remit this annually in arrears when you provide the valuation. The rub is of course that many life offices don’t pass the advantage to the client, but just trouser it for themselves – which brings me back to where I came in.
Harry Katz 28/04/2014 19:02
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