RDR: Commission to stay for Cobs/Icobs protection sales
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The FSA will allow firms who sell protection under Cobs to continue taking commission following the implementation of the retail distribution review.
In its latest RDR protection paper today, the FSA says it is amending its rules to allow Cobs advisers to continue taking commission, rather than implement adviser charging.
The paper says: “Since we cannot currently identify any consumer detriment that would arise from allowing firms to apply the Cobs rules but not the adviser charging rules, we believe that we should make this rule change so that firms can avoid these costs altogether. Firms can still opt to apply the adviser charging rules to their pure protection advice if they wish.”
The paper also says retail investment firms must explain how they are remunerated where pure protection services are ‘associated’ with investment advice. It is proposing that advisers disclose the amount of commission they receive if the customer then purchases a pure protection product. The FSA says ‘associated’ means circumstances where the firm is likely to agree an adviser charge for investment advice with the customer or if it has done so in the previous 12 months.
Bancassurers and other insurance providers who directly distribute their own products, where no commission is paid, are also required to explain in the same circumstances how the customer will pay for pure protection services.
The draft rules also require that they disclose a commission equivalent figure that represents the cost of advice and/or distribution.
Under the latest proposals, adviser labelling will not read-across to protection.
The FSA says it will publish a report into whether it will increase professional standards for pure protection in June.
It will also review the sales standards of pure protection products by mortgage intermediaries to ensure new patterns of commission-driven sales do not arise.
The FSA says it is now seeking feedback on whether its commission proposal is preferable. Responses to the consultation must be submitted by June 28 and the FSA expects to issue a policy statement outlining final rules in September.
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Readers' comments (3)
GXR | 26 Mar 2010 2:02 pm
The practicalities of this are a nightmare. How can you sit in front of a client and say, "yes, for this one you give me a fee... oh but for this I get paid commission". Surely the same problems apply for all business. Take commission away if advice is involved, or not. The industry can't manage both.
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Gary | 26 Mar 2010 2:24 pm
GRX............youve just explained it in a tranparant way above,so do so with your clients.What your telling them is the truth so whats your issue?
I also don't think the industry is that fragile that it cannot manage both ways,maybe advisers who cannot tell it the way it,and be tranparant will have issues,but thats not the majority.
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GXR | 26 Mar 2010 2:42 pm
Apologies, I don't think I explained myself very well, Gary. My concern is that the client is paying for advice/ service on the investment side.(i.e. no matter whether or not a product is purchased advisers get paid). On the protection side the adviser is getting paid for arranging the sale of a product. I can only see this creating mistrust in the industry as a whole. If there are commission issues on the investment side surely these also apply to other areas? I would rather have a fee only service on an industry-wide basis.
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