FCA eyes sunset clause for pre-RDR trail

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The FCA has floated switching off trail commission on pre-RDR investments as part of efforts to make it easier for fund groups to switch investors into cheaper share classes.

In its asset management market study final report, published today, the FCA says it will consult on introducing a sunset clause for pre-RDR trail.

Under the RDR, up until now it has been the case that previously agreed trail commission can be paid on pre-RDR investment amounts where products are topped up after 31 December 2012, and on fund switches within a product.

Trail commission was effectively turned off in April 2016 for advised platform clients, following a two-year sunset clause on legacy payments between fund managers and platforms.

In its final report, the FCA says it has been told by firms they find it difficult to switch investors into cheaper share classes.

Several respondents to the regulator’s interim asset management report in November suggested removing the requirement for investors to opt in and give their consent before moving them into a different share class.

They argued this would make it cheaper for asset managers to switch investors in bulk, but warned transfers should not result in “orphan” clients where investors are receiving ongoing advice.

Firms also proposed a sunset clause to end trail being paid on advised share classes bought before 31 December 2012.

One respondent said it wanted to switch off all trail across its fund range, as some competitors had done.

The FCA says although firms admitted there was “no legal impediment to reducing fees, firms indicated there was appetite for clarity from the regulator that unilateral cessation of trail commission payments in this way was an acceptable course of action.”

The regulator says it will clarify that fund groups can switch investors into cheaper share classes where they have not responded to requests for consent, where the required conditions for bulk switching are met.

It adds: “In response to respondents’ requests to reconsider our approach to trail commission, we are asking for any information that firms have about trail commission payments to advisers on share classes sold prior to 31 December 2012, with the view to feeding any findings into future work.”