The FSA has today outlined its proposals to ensure financial products are not sold on the market at below distribution cost as a result of deals between providers and distributors in which they have a significant ownership stake.
Although the de-polarisation proposals would end the better-than-best rule, the FSA today says its new commission equivalent rules should make sure that consumers still get the best deal by forcing disclosure of differences between commissions and full distribution costs.
Firms selling their own products must disclose commission equivalent, while firms connected to providers through ownership stakes must disclose the higher of commission equivalent or commission, the FSA says.
|Distribution method||Commission or commission equivalent disclosure|
|A provider’s representatives selling that provider’s own products||Commission equivalent|
|A firm owned by or owning 50% or more of a provider, or a firm with the same owner as a provider selling that provider’s products||The greater of commission equivalent and commission|
|A provider’s representatives selling another provider’s products||Commission|
|Whole-of-market adviser firm not within scope of ownership links described above||Commission|
|Adviser firm, not whole-of-market, not within scope of ownership links described above||Commission|
The FSA proposes changing rules governing the way commission equivalent is calculated. Currently, the industry relies on Actuarial Guidance Note 22, GN 22 for technical guidance.
The FSA says it is necessary to bring the technical guidance on calculating commission equivalent in-house under its Conduct of Business rules, in part because GN22 is "out of date", given its many references to old PIA rules.
The new guidance will improve consistency and clarity on behalf of consumers trying to compare prices, the FSA says.
As the new rules are introduced, firms will, in the first year, have to review their figures used to meet commission equivalent requirements, in accordance with the new technical guidance.
In addition, those firms that advise on a mix of own and imported products will have to recalculate their scales of commission equivalent.
"It may be necessary for such firms to do this each time they change their range."IFAonline
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