The Financial Services Authority (FSA) will allow advisers to continue to take trail commission after 2012 on fund switches within life policies set up pre-RDR.
The FSA had already banned 'legacy' commission post-RDR. This sees commission due on assets set up pre-RDR turned off if new advice is provided on the assets.
Commission due on pre-RDR assets where no new advice is given may continue.
But it said there was still confusion among advisers and providers on cases where new advice leads to no changes being made to a product, and where the advice relates to fund switching within a life insurance product such as an investment bond.
It said commission will still be payable on fund swtiches within life policies. However, all other fund switching will not allow commission to be paid, unless the client chooses to do so without advice.
The FSA said: "Given that the trail commission relates to the product as a whole, we consider that the ban on new commission post-RDR does not affect the payment of trail where the product itself is unchanged, with no new money being paid into it."
Having clarified its position on the issue, the FSA has also said it will keep an eye on whether advisers try to exploit the rules to maximise their commission.
"In particular, we will monitor sales pre-RDR to check whether there is an increase in advisers recommending their clients to purchase new products allowing subsequent fund switching within the product," it said.
Cases where trail commission can continue to be paid
Today's guidance gives the following examples of cases where a personal recommendation relating to a pre-RDR investment does not lead to an additional investment into the product:
- no change to the product;
- a reduction in the investment amount or the level of regular payments;
- a change from accumulation units to income units or vice versa; or
- fund switches within a ‘life policy' as defined in our Handbook glossary.
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