The Financial Advice Market Review has rejected calls to reintroduce commission despite pressure from some in the industry.
In January, Money Marketing revealed the FAMR panel – which helped inform the final recommendations of the report – was considering a proposal to allow providers to pay advisers directly, subject to strict controls.
FCA chief executive Tracey McDermott, who led the review alongside Treasury financial services director general Charles Roxburgh, subsequently confirmed bringing back an element of commission was being considered as part of the FAMR.
But the final report, published this morning, says: “A small number of respondents to the FAMR call for input recommended that commission be reintroduced for financial advice. However, these were outweighed by the opposing view.
“Given the strong arguments against a commission-based system, such as the lack of transparency and distortion of incentives, FAMR does not believe there is a case to consider this, and is therefore not recommending a return to commission-based financial advice.”
One argument put forward in favour of reintroducing commission was it would allow advice payments to be spread over a longer period of time.
However, the FAMR says the cost of advice can already be spread over a period of up to 12 months, provided there is an ongoing service or it is a regular premium product.
Nonetheless, it acknowledges take-up of this option is low and calls on the FCA to “take steps to ensure that firms and advisers are aware of the existing flexibility in the rules on adviser charging”.
To encourage more customers to pay for advice, the FAMR instead proposes allowing people to access a portion of their pension pot early.
In addition, it says the Treasury should explore ways to improve the existing £150 income tax and National Insurance exemption for employer-arranged advice on pensions.
And it urges the FCA to simplify existing advice definitions to give firms more confidence in delivering “streamlined advice” to savers with smaller funds.