What an interesting article from Peter Hargreaves about killer commission. I do not agree with him that IFAs will be dead in a few years. People have been saying that for many years and it never happens. I may well be dead but from a physical, not a business, point of view.
I do not think all of us are going to be particularly worried if indemnity commission disappears. To all intents and purposes,, most of our regular-premium pensions are now stakeholder, which are either level or minimal and most of the money comes from single premiums for investment and pensions.
I, for one, would very much support the abolition of indemnity commission, which I have always thought was a bit loopy. Furthermore, can we not get the same commission, generally speaking, on bonds and unit trusts, obviously allowing a little bit of leeway for those who want to pay slightly more or less.
It is difficult extracting fees from people. I used to work for an accountancy practice, a very big national organisation. Technically, it was fee-based but every time there was a commission product, we took the whole of the commission.
There was never any kind of rebate and we were told to advise the client that the money would be held against future fees.
This was a wonderful system because not only did you get a fee if there was no commission but you always got the maximum and there was no discount or anything like that, such as I do.
The day that I got fired from the practice (I think I was a bit too ethical for them), I had completed a £600,000 discounted trust bond at a commission of £30,000, which did not seem to impress the person who gave me the order of the boot.
I feel much happier now that I believe that I am treating customers more fairly but then I always have since being self-employed.
Peter McGann makes a very interesting point about commission being different on bonds from Oeics, a point that I have made over the last two years or so in the press. In fact, we even had an original A-Day when they were supposed to be equalised but that was quietly dropped. I wonder why?
I have always felt that the commission should be much the same. We used to have a maximum commission agreement which was abandoned so there is some form of competition but it has not benefited consumers.
As it happens, I always take the same commission on a bond as I would have had on a unit trust except that often it is not as much as 3 per cent because if it is a very large case and not much work, then I will go down to maybe 1 per cent or whatever is appropriate.
Jamieson Financial Management