Will MiFID II kill off trail commission on off-platform assets?

The latest  Investment Association Annual Survey  is packed with interesting facts and figures on the state of investment nation.  In 2014, fund platforms accounted for 55% of the UK gross retail sales (rising from 49% in 2013) and a whopping 89% of total net sales, bringing in around £18.4billion in net inflow.

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Five platforms (Cofunds, Fidelity FundsNetwork, HL, Old Mutual and Transact) account for around  three-quarters of the total platform market in terms of transactions, holding around £182 billion between them as at the end of 2014.

Looking at these numbers, we think that around 35% of the £1.1trillion assets of UK retail fund investors is now held on platforms. Platforms are indeed the custodians of people’s wealth!

But I digress. Buried on page 96 of the report is the suggestion that the new MiFID rules could result in a complete ban on commission from pre RDR off-platform business. The reports notes….

  •  The FCA decided not to impose a sunset clause in relation to the grandfathering of ongoing commission payments to advisers for undisturbed business written before the adviser charging rules came into force on 1 January 2013.
  • While a 6 April 2016 sunset clause that affects all provider payments to platform service providers will mean that the payment of commission to advisers through platforms will end at that date, commision on legacy business that is paid directly by the provider to the adviser would not be affected.
  • One possible outcome is that the combined impact of MiFID II and the likely stance of the FCA in implementing its requirements into UK regulation is that, in effect, such a sunset would be imposed from 3 January 2017, but the Association is planning to take this up with the FCA in order to see clarity around its intent.

If this turns out to be FCA’s stance, it’s bad new for advisers receiving trail from asset held directly with fund managers and potentially lifeco pensions. While MiFID II itself doesn’t apply directly to insurance-based investments and personal pensions, the FCA has already made its view very clear in DP15/3 Paper  ‘that insurance-based investments and pensions should be governed, in principle, by the same conduct of business rules as MiFID II investments.’

Many advisers are yet to deal with the PS13/1 sunset clause of platforms. We heard recently that, just 7 months before the deadline of April, 2016,  around a third of assets on Cofunds are still held in share classes paying trail commission! Imagine if advisers have to deal with a ban on trail commission on asset held directly with lifecos and fund managers, with only a few months’ notice?

Scary stuff!





Abraham Okusanya
Abraham is the founder of FinalytiQ, a research consultancy for platforms, asset managers, and advisory firms. Recognised as one of the country’s leading experts in retirement income, platforms and investment propositions, Abraham has authored several papers on these subjects and delivered talks to the Personal Finance Society, The FCA and several conferences across the country.
He holds a Master’s degree from Coventry University and an alphabet soup of qualifications, including the Investment Management Certificate, Chartered Financial Planner, CFP and Chartered Wealth Manager designations. He was one of 5 finalists for the Professional Advisers Personality of Year Award 2015 but the award went to a more deserving winner, obviously!

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  • stanleykirk

    The writing has been well and truly on the wall (even engraved as well) for some years regarding the end of trail commission. Providers have given themselves more and more powers to turn it off at will in their T&Cs, buyers of IFA businesses give it a very low value on sale (because it could stop anytime) and advisers find it almost impossible to check loads of tiny payments from multiple providers. The only real answer is adviser charging through a platform – which has been the main message of the Platform providers since the year 2000! So why, today, is only 35% of retail business on a platform? It does tend to question the amount of long term strategic thinking at the IFA business ownership level. The good news is that it is never too late to do something about it!

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