ABI highlights conflict between legacy ban and TCF

The Association of British Insurers (ABI) says it is unhappy with the FSA’s decision to ban legacy commission and says it will be difficult to comply with the ban and meet obligations for treating customers fairly.

Maggie Craig
Maggie Craig

The FSA published a consultation paper last month on the treatment of legacy assets. The paper confirmed that trail commission for ongoing advice could continue post-RDR but legacy commission, payable for changes made to existing products after December 31, 2012, would be banned.

Speaking at a Marketforce conference on the future of distribution in financial services in London yesterday, Maggie Craig, director of life and savings at ABI, said: “In our view the FSA was late in clarifying its position on legacy business.

“We have had a lot of conversations with the FSA about this. I cannot pretend to be happy with where we have ended up but in some cases I do have to play the cards that I am dealt.”

Providers’ systems currently automatically generate commission on top-ups to existing investments. It is estimated that if providers were to switch off the commission across all legacy products, the cost of systems changes could run to hundreds of millions of pounds.

Craig questioned whether policies will have to be closed to top-ups, or whether products will end up being moved to get over the difficulties of top-ups to existing products.

Craig said it would be “paradoxical” if the ban ended up driving people to execution-only due to complications with facilitating adviser charging.

Philip Brown, head of retirement propositions at LV=, who attended yesterday’s conference, raised the issue of how the legacy ban conflicts with TCF.

Craig said: “That is one of the problems we are facing. If we were to say this type of policy is no longer available to be topped up how do we then square that with TCF obilgations? That is one of the reasons we have been talking to the FSA to say while we are now at the point where legacy commission is definitely going to be banned the FSA should be in absolutely no doubt that is not a detriment-free zone.

“We are going to have to continue to work that through. There is no doubt about it, it is the sort of the dilemma that we are going to be looking at as we implement this.”

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