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Alternatives to an over-reaction

It is remarkable how attempts to improve confidence in savings often simply undermine it.

The ABI report, Financial Advice And How We Should Pay For It, compiled by consultancy Charles Rivers Associates, demonstrates a limited commission bias.

There is some bias towards some providers and a tendency to recommend investment bonds over Isas but it concludes there is no evidence that products are sold inappropriately just because of commission.

Yet the consultancy’s recommendations are radical, including a call for advisers to provide clients with an annual commission statement and banning indemnity commission.

Aifa is particularly irate, given the work it has done on the menu.

We agree that the recommendations are an over-reaction and suggest some alternatives for the ABI.

First, it should ask whether it is pandering to MPs’ prejudices regardless of market realities. It should consider the behaviour of its own members. Several have been guilty of attempts to “buy” market share. It might suggest solutions to real problems such as how split-capital investment trusts and precipice bonds let down thousands of investors. It might reconsider helping with the compensation scheme burden instead of piling even more regulatory misery on IFAs. Finally, it should come up with some proposals to ensure consumers know what they are getting when they buy through multi-ties.

The ABI and the FSA should work on the really urgent issues. They might start with a misselling definition and then consider how the system failed to stop inappropriate products being marketed and sold inappropriately. It is certainly not because of the old chestnut of commission bias.

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