FSA sets out details of trail commission legacy rules

The Financial Services Authority (FSA) has outlined its new adviser charging rules which allow trail commission to be switched if a client moves adviser firm post-2012.

Advisers choosing to re-register commission after 2012 will have to tell customers when they apply for re-registration and reveal the amount of commission being transferred.

Advisers will also have to provide an ongoing service in exchange for receiving the trail commission, regardless of whether the original contract allowed for this.

The details come in its quarterly consultation paper today inviting feedback on changes to the FSA handbook. (article continues below)

In March 2010, the FSA published its final retail distribution review (RDR) rules on adviser charging, but these did not cover what would happen to trail commission in 2013 where a client moves to a new adviser.

“There is no intention to compel new advisers to re-register trail commission if they prefer not to do so”

In the paper, the FSA says: “Following discussions with the industry and consumer bodies, we propose to add a new rule saying that re-registration can continue, where permitted by the contract between the provider and the previous adviser, and subject to the terms of that contract. There is no intention to compel new advisers to re-register trail commission if they prefer not to do so.”

The FSA has also confirmed that trail commission on legacy business, in place before the end of 2012, will continue to be paid. This rule will also cover situations where firms give advice on a commission basis shortly before the end of 2012, but the initial or trail commission is not paid until 2013.

If a firm or its book of business is sold, trail commission will be payable to the new firm according to the contract terms.