The Financial Services Authority (FSA) has begun informal discussions with key industry players about a potential ban on all fund commission payments from the start of 2014 for business written on platforms.
Investment Week can reveal the regulator is considering setting a deadline date for a complete ban on fund commission rebates paid to advisers from platforms from 1 January 2014, including legacy arrangements.
If introduced, such a move would effectively end trail commission paid to advisers on funds they recommended to clients pre-RDR.
The regulator has begun informal consultations with the industry and may reveal the proposals in its final platform paper.
It is looking at insisting platforms move legacy money in investment funds over to new pricing models by that date, which may include transitioning clients to clean share classes at the same time.
The regulator wants to ensure the retrospective ban is in place by targeting platforms rather than asset managers, in an attempt to speed up the switch to a commission-free world. However, it is understood this will not affect legacy life and pension contracts, which will at this stage remain out of its scope.
"We could be talking about a complete ban on all commission payments, including legacy arrangements through platforms. It would also include the execution-only market," one source said.
While the FSA is understood to be pleased at the speed with which groups have launched clean share classes, it remains keen to tackle the issue of billions of pounds of assets sitting in funds which pre-date the RDR rules.
The FSA is taking action as it is concerned bundled funds may be kept open indefinitely, despite the requirement for fund groups to facilitate unbundled charging.
"The regulator is thinking about putting a time limit on when everyone needs to move over to new pricing models. It may even happen in one overnight big bang," said one source.
"For people in bundled 150bps share classes, the regulator might force them to move into clean 75bps share classes. Although conceptually this seems like the simplest solution, it has fundamental market outcomes. An adviser would see payments being switched off overnight."
Some segments of the industry have already called for changes in the way trail commission payments are treated. Last year, the IMA called for a sunset clause which - if enacted - would effectively ban advisers from taking trail commission on pre-RDR business written from a certain date.
While controversial, and fraught with legal questions, a move to ban rebates on legacy business would help the FSA meet its objective of ensuring clients have up-to-date advice.
It would also tackle the many orphaned clients on asset managers' books who were put into a product years ago but no longer receive advice, but who still pay trail to advisers.
However, it is likely to meet stiff resistance from fund groups, platforms and advisory groups.
Many businesses are likely to oppose an outright, retrospective ban, as it would end rebate deals struck with asset managers years ago, and force platforms to charge fees from clients directly on all business, rather than just new transactions.
Such a switch would also present a number of technical challenges for asset managers and platforms. There are potential problems around the tax treatment of certain assets and the huge cost of implementing a move of all clients into clean share classes. It would also remove valuable income streams from advisory businesses.
The FSA has not sent formal guidance to asset managers and platforms on the issue, but has started an informal dialogue and is awaiting industry feedback.
A spokesperson for the FSA said under current rules, trail commission for pre-RDR advice is allowed to continue.
On potential changes to non-advised platforms, the regulator said: "We have no current plans to extend the RDR ban on commission for advised sales to non-advised sales, although as we have said, we will keep this under review."
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