Mike Kellard, Chief Executive, AXA Wealth, comments on the impact of the FSA possibly agreeing a delay to ban legacy commission, following lobbying from some providers with large legacy books that their customers might suffer if they forced to close all legacy products to increments, as they don't have the time to get ‘RDR ready'.
"The argument that we should delay a ban on legacy commission under RDR, as it may lead to customer detriment, needs examination," says Kellard. "I would argue that the principles of removing commission bias have been at the heart of the RDR since it was launched in 2006 and that the FSA has been clear about the need for transparency ever since. Therefore, you could argue that providers and advisers have had long enough to adapt to a new model, which has no dependence on commission.
"My concern is that the longer we continue with a twin track system, the more confusing it will be for consumers, and the more likely it is for the expected benefits of RDR to be eroded by running these two payment systems side by side.
"Imagine the scenario of a client with £50,000 to invest. Where should the money end up - in a new transparent product or ploughed into an existing indemnity bond, with a 9% commission loading? The potential for commission bias therefore may still exist if we don't ban the practice.
"I believe therefore that the longer we continue with this optionality, the more detrimental it will be to customers, far more than any perceived impact of traditional providers being unable to take increments on legacy products. The fact remains that the sooner we move to a system free of commission, upfront, legacy or trail, the better the overall outcomes will be for consumers. The FSA should stick to its agreed RDR timetable."
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