An online survey of 500 advisers revealed that 59 per cent of remuneration currently comes from initial commission, with 26 per cent from trail commission and 12 per cent from fees. However looking ahead three years, only 43 per cent of advisers expect their remuneration to come from initial commission, with 37 per cent looking to shift to trail commission and 18 per cent to a fee-based model.
Skandia’s average level of initial commission selected by advisers on capital and income bond product reflects this trend, falling from 5.4 per cent in 2005 to 4.5 per cent in 2007. Its fund based fee option has also increased from 22 per cent in 2005 to 44 per cent in 2007.
The Company believes this marks a shift in emphasis on standalone product sales to an ongoing review and financial planning service with supporting research that shows the majority of advisers review a client’s portfolio at least once or twice a year.
Skandia bond products marketing manager Jeremy Mugridge says: “Reducing their reliance on initial commission and building up ongoing commission or fee revenue streams can help advisers ensure the remuneration they receive is in line with the service they provide to their clients whilst building long term value into their businesses at the same time.
“Our research shows that advisers are already making the transition away from initial commission and the FSA’s Customer Agreed Remuneration work is likely to further the trend towards ongoing commission or fees.”