IMA urges FSA to clear up 'grey' legacy areas

FSA rules around legacy assets are “unclear” and “incomplete” and could result in less transparency for consumers, according to the Investment Management Association (IMA).

In its response to November's consultation on legacy assets, the IMA said there remains a lack of clarity on when commission can be paid for legacy business in certain circumstances.

The November paper on the treatments of legacy assets set out plans to ban 'legacy' commission - money due to an adviser as a result of a change to the existing contract made at any point after 1 January next year.

But the IMA has urged the watchdog to clear up a number of grey areas it says go against the transparency principles underpinning RDR. 

Citing one area of ambiguity, the IMA questioned what will happen when consumers seek advice on exiting investments but are told to make no changes.

Furthermore, the trade body said the regulator needs to stipulate which party will be responsible for declaring whether or not advice has been given.

It said fund managers will not be able to know if clients have received advice and will have to rely on advisers, platforms and distributors as to whether they should continue to pay commission.

The IMA has urged the watchdog to introduce a sunset clause -an idea first mooted by the Skandia platform - after which commission payments would cease.

Without a sunset clause, the IMA said there is a danger of market distortion due to differing treatment of investments within wrappers and those held directly - something which could encourage sales of wrapped products even if not in the best interests of clients.

"The FSA needs to do three things: provide practical examples of what is classed as legacy business to cover a number of common scenarios; make it clear where the responsibility lies to determine when commission can continue; and create a level playing- field across all products," said IMA senior adviser, retail distribution, Andy Maysey (pictured).

"To implement RDR effectively and in the interests of consumers, there should be no grey areas."

He added the FSA should not veer too far from its original proposals because many firms have already invested considerable time and money preparing for a scenario set out in previous FSA statements.

The plea from the IMA to clear up ongoing legacy confusion comes on the back of several providers voicing their concerns over current FSA thinking on the issue.

Insurer Aegon, in its response, warned removing trail commission from fund switches could have "disastrous" implications.