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AIC urges FSA to mandate factory-gate pricing

The Association of Investment Companies is urging the FSA to mandate factory-gate pricing.

AIC director general Daniel Godfrey says: “Of course, the price of the actual advice given should be made transparent, but it is even more important that investors should be able to buy directly from manufacturers at the net price.

“This will mean that they will only buy through advisers where the adviser can demonstrate that their advice adds value. This would do more to incentivise advisers to raise standards than any other initiative could possibly do.”

Godfrey says the biggest issue raised through the review is whether the industry’s current model can produce simple, value for money products with high quality advice.

He says “The present system in the funds market means that if a consumer does their own research and makes their own choice, they still have to pay for advice that they have not received.

“This system has led to the “discount broker” where an independent financial adviser will allow a consumer to use their agency on an execution-only basis to place business. They then rebate the initial commission and earn their profit on the trail.

IFAs can make a fortune out of not giving advice. It sounds mad but it is true and it exemplifies the lack of incentive inherent in the system for advisers to raise standards.”

But the AIC’s push toward factory-gate pricing model for advisers to follow has not sat well with everyone from the IFA community.

Baronworth IFA Michael Brill says: “I don’t see a problem with their idea except it may be a bit complex.”

Brill says mandating the charging structure using factory gate pricing would be an “unnecessary complication” and time consuming.

He says: “I think in general terms, most clients are quite happy with the way things are at the moment regarding charges.”

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