This guide is subject to UK law and was last updated on 13th October 2010. The Financial Services Authority (FSA) has confirmed that advisers will still be able to earn trail commission on retail...

This guide is subject to UK law and was last updated on 13th October 2010.

The Financial Services Authority (FSA) has confirmed that advisers will still be able to earn trail commission on retail investment business put in place before the end of 2012 but which continues after the new adviser charging rules come into effect.

It will also allow trail commission to be transferred ("re-registered") to a new adviser, subject to the terms of the contract between the provider and the previous adviser and provided the new adviser is offering an ongoing service to the retail client.

The measures clarify an issue that was not fully dealt with in the FSA's final Retail Distribution Review (RDR) rules, published in March 2010. The final text is included in the regulator's quarterly consultation paper of 6th October.

Legacy business

Under the RDR rules, commission will no longer be payable by a product provider on new business after the cut-off date of 31st December 2012. A firm making a personal recommendation to a retail client in the UK to invest in a retail investment product will be paid an adviser charge agreed with the client in advance.

But a new transitional rule proposes to allow continued payment of trail commission on "legacy" business after 31st December 2012, subject to the original contractual terms agreed between the provider and the adviser.

This would also apply where a firm gives advice on a commission basis shortly before the end of 2012 but the initial or trail commission is not actually paid by the provider until 2013.

If the adviser firm or its book of business is subsequently sold to another firm, the trail commission will be payable to the new firm in accordance with the original contractual terms.


Re-registration is the process that allows trail commission to be switched to another firm when a client changes financial adviser. Some product providers' terms of business allow re-registration, others do not.

Although the new adviser will not have provided the original advice service, the transfer of trail commission is usually justified on the grounds that the new adviser has taken on responsibility for the client's future financial arrangements. In some cases, but not all, the product provider specifically requires the new adviser to provide an ongoing service.

The client will usually be made aware that a re-registration is taking place because the product provider requires the new adviser's application to be countersigned by the client.

The FSA is proposing to allow this market practice to continue, subject to a few new conditions.

Re-registration will only be able to take place after the end of 2012 if permitted by the contract between the provider and the original adviser and subject to the terms of that contract.

In addition, the new adviser must tell the client that he is applying for re-registration and the amount of commission being transferred. It will also be a requirement that the new adviser provides an ongoing service, whether or not the original contract required this as a condition of transfer. What this ongoing service should be is not specified.

Group personal pension schemes

Similar provisions allowing trail commission would also apply to the consultancy charge earned by firms advising employers on group personal pension schemes.

The consultancy charge operates in a similar way to adviser charging, except that the advice is given to the employer, not to individual retail clients. Firms assisting employers with the setting up and administration of group personal pensions after 31st December 2012 will agree a consultancy charge with the employer, rather than being paid commission set by the pension provider.

The FSA proposes to deal with trail commission in this market in much the same way as for retail investment products. Similar rules will apply requiring disclosure of information and an ongoing service but these will be provided to the employer who set up the relevant scheme.

The consultation closes on 6th December 2010. The trail commission rules will come in to force with the rest of the RDR rules at the end of 2012.

Contact: Bruno Geiringer ([email protected] / 020 7418 7306)

See: the quarterly consultation paper (213-page /1.16 MB PDF) 

See also: The RDR: adviser charging, an OUT-LAW Guide

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