20th November 2012
MetLife and the Retail Distribution Review
The Retail Distribution Review (RDR) is possibly one of the biggest regulatory overhauls our industry has ever seen. It’s a big change not only for you, but also for your clients and product providers like us.
We’re working hard to ensure that we’re ready for RDR and that the transition is as seamless as possible for you.
We’ll be providing you with ongoing updates in the lead up to RDR going live to ensure you know exactly what we’re doing and when. In the meantime, we can assure you that our commitment to providing financial certainty in an uncertain world hasn’t changed, and we’ll continue to offer our unique range of guaranteed and protected retirement and investment solutions in the future.
A high level summary of our approach to RDR is shown below:
1. Impactonpolicyguarantees
Our guarantees will continue to be based on the amount received from your client. For example, if we receive £100,000 into a Guaranteed Investment Bond and an instruction to facilitate a £3,000 initial adviser charge, we will allocate 97% into the policy, giving a fund value of £97,000, but a Secure Capital Value of £100,000.
2. MetLife products
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We will be making all of our wealth management products RDR compliant :
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- Retirement Portfolio
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- Trustee Retirement Portfolio
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- Guaranteed Investment Bond
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- Income for Life Bond
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- Protected Growth Bond
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We will facilitate payment of adviser charges across all of these products, giving your client the option to pay you either directly or via MetLife. The charges will be paid for by a reduced investment allocation or from unit deduction.
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Our adviser charging payment options are shown below and further details regarding these will be made available in due course.
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- Initial Adviser Charge
a one off payment that can be made at the outset of the investment. -
- Ongoing Adviser Charge
a regular payment that can be paid from the investment fund, e.g. monthly, quarterly, four monthly, six monthly or yearly. -
- Ad-Hoc Adviser Charge a one-off payment.
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• The maximum unit allocation will be 100% of your client’s investment (no enhanced allocation).
3. Taxation implications
Where clients instruct MetLife to facilitate payment of adviser charges from their product, the charge is treated as a payment from the client to the adviser (unlike commission that is a payment from MetLife to the adviser). This impacts the way we treat our products in the following ways:
• Bonds (Guaranteed Investment Bond, Income for Life Bond, Protected Growth Bond)
When a bond is set up there are two options available to the provider to facilitate payment of adviser charges.
Option 1 Option 2
To take the initial adviser charge from your client’s payment before applying it to the policy. For example, if your client sent in a cheque for £100,000 with instructions to pay £3,000 to their financial adviser, an amount of £97,000 would be applied to the bond. Your client would then be able to take a 5% deferred tax free withdrawal allowance based on the £97,000.
To take the initial adviser charge from your client’s payment after the policy has been setup. Using the example above, the £100,000 would be applied with a 97% allocation, leaving £3,000
to be paid to the financial adviser, again leaving £97,000 invested in the bond.
Although your client’s outcomes look the same, the differences are that for Option 2:
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the initial adviser charge will be included towards your client’s 5% deferred tax free withdrawal allowance for that policy year; and
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the MetLife guarantee will be based on the full £100,000 payment (rather than £97,000 should the adviser fee have been paid before the bond was set up).
MetLife will be facilitating payment of adviser charges using Option 2.
Please note that for both options the ongoing adviser charge and ad-hoc charge will always be included in your client’s 5% deferred tax free withdrawal allowance.
• Pensions (Retirement Portfolio, Trustee retirement Portfolio)
We are working on the basis that we can allow fees to be paid from the MetLife pension, in respect of the provision of advice for the product, and that the Pension Commencement Lump Sum can be based on the full fund value before adviser charges have been made.
MetLife are working on the basis that all adviser charges facilitated by us won’t account for VAT.
4. MetLife’s legacy products
New money
The new adviser charging rules will apply for all top-ups, including increasing regular contributions.
Trail commission
Unlike new money, trail commission on legacy products is slightly more complex. The following outlines MetLife’s approach to trail commission, which reflects current requirements from the FSA.
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Trail commission will continue for our legacy products at their existing levels;
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Fund switches can be made without affecting trail commission;
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Where a client changes their financial adviser, trail commission will stop and future remuneration will need to be paid by either ongoing or ad-hoc adviser charging; and
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If clients are transferred between financial adviser firms following a business takeover, then trail commission can continue for those clients.
Where Ongoing Adviser Charges are taken in place of trail commission, they will be limited to the maximum amount previously taken, for example 0.5% of fund value.
5. Adviser charges
Maximum adviser charges from our products
We will set upper limits on the amount of adviser charges that we will facilitate from our policies. We will also set limits that can be taken without impacting your client’s guarantee – this is known as the ‘guaranteed fund limit’ and will apply to policies with a capital or income guarantee. If your client agrees to adviser charges over the ‘guaranteed fund limit’, their guarantees will be reduced proportionally.
If you agree a charge with your client that is higher than our upper limit, then the extra amount will need to be paid by your client directly to you.
Details of our limits will be provided in due course.
Processing for starting / stopping payments
We will act on written instructions from your client to increase, decrease or stop adviser charges, subject to our upper limit or sufficient value remaining within the policy. Instructions can only be applied from the current date. We would normally expect your client’s initial instructions to be included with the “new business” application.
We will notify your client of any impact the charges may have on their policy, in particular the effect on their guarantee. We will inform you of any instructions received.
6. Key transition dates
The below will provide you with an overview of key dates to help you manage your transition to adviser charging.
Last day for new commission quotes
First day for new RDR fee based quotes
Last day for MetLife to receive commission based application forms* Last day for monies to be received for commission based applications
Friday 28 December 2012 Monday 31 December 2012 Thursday 31 January 2013 Friday 29 March 2013
* We will use the date the client signed the application form as a proxy for when the advice was given. So all application forms must be signed and dated by the client before 31 December 2012 for us to accept the application.
7. Policycancellationsduringthecoolingoffperiod.
For all of our products, where MetLife has already facilitated payment of the adviser charge, we are working on the basis that this will remain paid. Therefore the refund will be based on the fund value net of the adviser charge.
8. MetLife / Financial Adviser - Terms of Business
Your existing agency will continue but we will update our Terms of Business to incorporate the RDR changes. These will become available prior to RDR coming into effect, and we will communicate this with you closer to the date.
9. Any questions?
For more information on RDR, or if you have a question that is not covered above, please contact your MetLife Sales Representative or visit our RDR pages at www.metlife.co.uk
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