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Prudential response to the sunset clause

A number of intermediary firms have enquired about Prudential’s stance on the continued payment of trail commission. In this communication we outline the rules on packaged products and our position.

What are the rules on trail commission on packaged products?

Following a lengthy consultation, the Financial Conduct Authority issued its final decision regarding trail commission through legacy products in its policy statement PS 12/3 in February 2012. The rules held within the FCA's policy statement still stand.

The key points of the policy statement:

  • Trail commission may continue to be paid on legacy retail investment product, or a transaction executed on, or before, 30 December 2012.
  • Trial commission in respect of a pre-R Day recommendation may be rebated back to the client as part of a new adviser charging agreement.
  • A personal recommendation involving a legacy product post R-Day does not automatically require trail commission to be “turned off” in a range of scenarios, such as a fund switch within a life policy.
  • Any personal recommendations for new investments into an existing life policy post R-Day must be on an adviser-charging basis.
  • Non-advised sales remained unaffected by the rules on adviser charging, although the FCA has now said it will keep this under review.

What does 6 April 2016 mean for Prudential?

Our position regarding the payment of trail commission on pre-RDR packaged products hasn't changed. We will continue to pay trail commission on packaged products (subject to our terms of business) where we are permitted by regulations.

It is important to recognise that Policy Statement 13/1 applies to all platforms and fund providers. This means that all trail commission that is currently paid on legacy business sitting on any platform is required to be stopped no later than 6 April 2016.

Our Dynamic Portfolios Funds are accessible via a large number of platforms and much of this investment continues to generate relatively small amounts of trail commission which is paid through these structures. Therefore from 6 April 2016, any trail commission generated from these funds through platforms will cease to be paid. Under FCA rules, trail commission payments for platform investments in the Managed Defensive and Cautious Managed Growth Funds will cease from 9th September 2015 as a result of the material changes to these funds taking place on that date.

The implementation of these changes is driven by the platform service providers and Prudential has limited influence over the timing of this transition, however advisers, and/ or customers, can contact their platform providers for more information.

In summary

Prudential's position on trail commission is very clear and hasn't changed – we have no intention to close trail on pre R-Day packaged life and pension products.

The position regarding platforms is more complicated as platforms may choose to stop the payment of trail commission during their share class conversion process driven by regulations in Policy Statement PS 13/1.

Specifically the 'Sunset Clause' requires all legacy customers to be moved to a platform service charge with all trail commission stopped by 6 April 2016.

For UK Adviser Use Only - Not Approved For Use With Clients