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When The Sun Goes Down On Trail

October 9, 2015

A survey this summer revealed that 90% of advisory firms feel ready for the enforced rule changes relating to legacy trail commission.  As of 6 April 2016, the sunset clause, will see the switch off of all legacy trail commission on platform and corporate pensions business. Whilst this is an interesting newsworthy statistic, it is important to note that that this percentage was based on a carefully selected sample size of just 89 advisory firms. The total number of financial advice firms registered by the FCA in 2014 was 14,550 which brings into to question, the accuracy of such a statistic?

 

Many advisers that have worked tirelessly in the advice sector for decades will have built their entire careers around a commission based business model and contrary to what is being reported in the press, these advisers are saying that they are just not ready for the rule changes.

 

Sadly, when the sun goes down on trail commission on April 5th 2016, businesses which have not fully prepared by moving clients onto customer agreed remuneration, or that have a large number of clients with smaller portfolios where it is not cost effective for adviser or client to shift onto a fee paying structure, will see profitability tumble.

 

Certain advisers will be under the illusion that the changes are not going to happen.  This was the case with advisers who were in denial about the post RDR requirement for increased levels of qualifications at the end of 2012. These additional qualifications included a Certificate in Financial Planning (five exams) and a Diploma in Financial Planning (four exams) totalling arguably an additional 18 months to two year’s work on top of the day job.

 

This meant that there was an immediate drop in financial advice firms that were registered, purely because advisers did not believe the rules would be enforced and therefore hadn’t taken the time to sit the required exams. They then had no choice, but to take the required exams, in order to get re-registered.

 

Bradbury Hamilton has worked tirelessly to move clients over to customer agreed remuneration, but in order to be cost effective, there is a minimum portfolio requirement to qualify which is £75,000. Unfortunately, a number of our clients won’t qualify.

On this basis, current calculations show that the business is likely to lose around 5% of reoccurring revenue post sunset clause, which begs the question; how is that going to impact other firms who haven't done as much to prepare?

 

The answer is that undoubtedly, there are many advisory firms out there which will find that they will be quite badly affected, even those who have been very diligent. This in turn will precipitate the departure of businesses that are gearing down and will want to sell to the right firm.

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A summary of our internal complaints handling procedures for the reasonable and prompt handling of complaints is available on request and if you cannot settle your complaint with us, you may be entitled to refer it to the Financial Ombudsman Service at www.financial-ombudsman.org.uk or by contacting them on 0800 023 4 567