Aifa says adviser-charging creates "free distribution" for providers
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Aifa says adviser-charging effectively creates free distribution for providers with the costs passed on to consumers and has called for an industry debate on the issue.
Policy director Andrew Strange says a sensible debate is needed as to how providers’ distribution costs should be assessed after the RDR.
He says: “After 2012, every provider of retail investment products in the UK will benefit from free distribution as, by definition, that is what adviser-charging is. There is no other sector where distribution is free for a manufacturer. It is about time we grew up and actually had a sensible debate about who is paying for this because at the moment it is the consumer.”
Strange says this debate would need to extend to questioning the funding model of the new Consumer Protection and Markets Authority.
He adds: “If the cost of distribution is to be borne by consumers, is there a debate about how the CPMA is funded that we should be having here?”
In its latest consultation paper on regulatory fees and levies, the FSA says it cannot justify further work to address the disproportionately high level of fees paid by advisers for indirect FSA costs. Aifa recommended the proportion of indirect costs paid should be linked to firms’ revenue.
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Readers' comments (18)
Mark Turner | 28 Oct 2010 1:03 pm
No other sector where distribution is 'free'? Whilst many manufacturers might support large retailers e.g. kelloggs/tescos or Sony/PC World with Marketing Discount Funds etc. they don't pay to have their products distributed through small and medium size distributors in the way that insurance companies have done for many years.
I'm not comparing advice with these commodities but the statement is simply not correct and therefore undermines the valid point the funding of the CPMA should be revisited.
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derek pearce | 28 Oct 2010 1:04 pm
and this is news!!?? providers will be one the few winners after this debarcle happens, otherwise they'd be lobbying like mad and it wouldn't go ahead!
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Anonymous | 28 Oct 2010 1:11 pm
That's nonsense, providers have distribution costs, they will continue to do so and will have to ensure these costs are covered in wrapper charges and/or fund charges
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Simon Kershaw | 28 Oct 2010 1:19 pm
I have been tinkering with this for some time now. I see no reason why my firm - a commercial enterprise - should distribute retail financial product ( with a high level of regulatory risk and cost ) for nothing.
If a platform provider wants us to use them why should they not pay a fee for the privilege?
Fee to platform 0.5%? Seems reaonable, is not commission and is not paid by the client. What's not to like?
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Andrew | 28 Oct 2010 1:20 pm
And it has taken Aifa all this time to work that one out ! !!!
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Julian Stevens | 28 Oct 2010 1:59 pm
One way or another, the buyer of a product pays for its distribution. How can it be any other way? The money has to come from somewhere. If AC (I prefer CAR) leads to products with simpler and more transparent charging structures that are easier to understand and to compare, then that seems to me to be a positive step forward. Product providers are not in business to do their distributors favours and, even if they were, it's always the customer, ultimately, who pays for those favours.
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Anonymous | 28 Oct 2010 2:03 pm
"There is no other sector where distribution is free for a manufacturer"
Really?? I thought that any distributor of any product simply put a margin on the product to pay for their distribution..(think of it as an "advisor fee" if you like) whilst the manufacturers of the product pay to build/ cook/ make/ market/ support the sale (well, or badly depending on the organisation) and the best products will benefit.
It's all well and good to have a trade organisation, but a blind one is not much use.
If an IFA wants the product manufacturer to pay for their services, tie to them, that should solve it, but if an IFA wants to to do a great job for the client completely independent of a manufacturer, then let the client pay for it.
Right or wrong (many things wrong) with the RDA, at least it acknowledges advice based on who pays the highest fee for distribution is not the way to get independent advice. That model is broken, thank goodness.
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Andy Newman | 28 Oct 2010 2:15 pm
This is surely what the RDR is about. The 'distribution' cost at the moment is the cost of commission, be that to IFA or a bank.
After RDR and in some cases now we will have 'factory gate pricing' so the product cost to the consumer reduces down to the manufacturing cost. But on top they have to pay the adviser a fee for their time.
There is a chunky distribution cost for consumer goods, you have to get them say to the supermarket. For services and financial services is no exception there is no distribution cost, as nothing tangible is being distributed.
Though financial services has for years talked about 'distribution costs' and called advisers distributors, it's really a misnomer that suited the pre RDR model.
Have I missed something... can anybody or AIFA identify a post RDR distribution cost (as distinct from a manufactiring and or marketing/promotional cost)?
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Andy Newman | 28 Oct 2010 2:26 pm
@Derek P.
Product manufacturers can't win. We are the bad guys luring advisers in with evil amounts of commission OR we are the bad guys shutting out advisers by removing their life blood commission.
I think the idea behind RDR was to benefit the consumer, I don't think there will be any winners out of product providers, IFA's or banks, more like some of us will be relatively less harmed.
I'm not sure the consumer in the wider sense will benefit either, but we will see.
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Craig | 28 Oct 2010 2:28 pm
I presume that this comment is made in relation to commoditised sales like protection and mortgage. For an IFA, you are and always have been paid for the advice, not the product choice. If you were paid for product choice then online direct would be the solution e.g. cheapestpension.com etc. IFAs who are scared of fees must be oblivious to the value of their expertise.
The providers they pay for distribution through sales reps and commercial deals where companies broker better than market prices. Glaxo do not pay the NHS to use their products!
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