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&#39Commissionto be slashed across board&#39

Up-front commission for IFAs will be slashed by two-thirds by 2003 as stakeholder prices are applied to all financial products, claims Cap Gemini Ernst & Young in a report.

The report, which surveyed the country&#39s biggest insurers and IFAs, predicts that nine out of 10 financial products will carry a 1 per cent charge by 2003.

It says life offices will not be able to afford large up-front commission to IFAs when they cannot recoup revenue from product charges.

The report says cuts will not be felt immediately as life companies will continue to pay IFAs initial commission in an effort to buy market share and keep their client base.

But it says this will sparka move towards fund-based renewal commission.

It believes reduced commission will force e-commerce to the forefront. To bring down their own costs, IFAs will demand an extra range of support services on an electronic basis.

Cap Gemini Ernst & Young vice-president Shaun Crawford says: “Renewal commission encourages IFAs to keep their clients with the same pension fund.”

Maddison Monetary Management managing director Mark Howard says: “The industry cannot support the current method of remunerating for advice. We have got to embrace different ways of getting advice paid for or we will die as an industry.

“Charging fees will make us professional advice givers rather than product sellers and we can earn every time we deal with a client.”

Scottish Widows head of IFA development Robert Wyllie says: “The amount we can recoup in charges will affect IFA commission.

“But this does not spell the death of the industry. IFAs have been adept at changing their business operations. The industry has proved it can live with change.”

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