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Commission and the ABI

Money Marketing editor John Lappin replies to criticism from the ABI.

We have been standing up for advisers for over 20 years but have always been prepared to give product providers the benefit of the doubt.

We are amazed that the Association of British Insurers continues to insist our coverage is wrong and has chosen to use a rival paper to put across its views.

Having edited Money Marketing for the last seven years, I have never read anything so incompetent as the first draft paper from the ABI which was replete with venom and contempt for advisers. It was not an “early” draft as the ABI has claimed. It was circulated only a few weeks before its final paper was passed to the FSA.

The final paper asked the FSA to “take regulatory action to ensure intermediaries move away from the commission-based system to a new approach.” Our interpret-ation is that this still constitutes a ban on the method of remuneration the majority of our readers take to mean as commission if they want to remain as full advisers. The ABI’s Caris system offers certain flexibilities in payment methods but the ABI specifically calls for regulatory action to force advisers away from what they know – in other words, a ban.

Both the March draft paper and the April final response are available at www. moneymarketing.co.uk. The language was strongest in the first draft paper but we believe much of it holds for the second paper, although at times it seems confused in what it wants the FSA to do, mixing “encourage” with “ensure”, which have very different meanings.

It still includes the self-serving call for a light-tough regulatory regime for their own direct salesforces. We do not believe it is a “conspiracy” to suggest that such a move could be used in time to resurrect DSFs and challenge the IFA sector.

Providers are also now arguing this move to factory gate pricing, which we agree would be to the benefit of many of our readers and their clients, is not a one size fits all approach and does not constitute a ban.

There is a reasonable explanation from Prudential of what factory gate pricing might mean in this week’s issue of Money Marketing and how it might eventually help advisers. Both Royal London chief executive Mike Yardley and Axa Wealth Management/Winterthur Life’s chief executive Mike Kellard also gave reasonable explanations of how a reform might work in front of hundreds of advisers at Money Marketing Live last week.

But what was put in black and white by the ABI and then sent to the FSA was grossly incompetent. The move could be encouraged by incentives but should not be enforced by regulation.

When John Tiner stands down as chief executive, his replacement might just be on a mission to “sort out” the retail sector and one can easily imagine Prime Minister Brown issuing instructions to sort out commission. All they need is the second ABI paper as ammunition.

In this debate, Money Marketing knows factory-gate pricing is already successful in some parts of the market and any move to greater transparency is to be welcomed. But there would clearly be some short and arguably medium-term pain for intermediary businesses.

Whatever the ABI and its members, mean we do not think either ABI paper advocated a ban on trail commission. Much of the Caris system appears to rely on trail being part of the mix.

It did suggest in some single transactions that responsibility for servicing the client should remain with the provider with no trail paid. In one controversial suggestion, it also said in certain cases a client might get the right to cancel trail payments if service was not up to scratch. Such suggestions may not be to IFAs’ taste and is a concern particularly because well serviced but greedy clients might cancel trail payments but it is not a ban. But it is our analysis that the ABI paper suggested banning current up-front commission remuneration.

Finally, our most fundamental argument is why on earth the ABI is arguing for regulatory intervention at all if it is so convinced that factory gate pricing is in advisers’ best interests.

Many advisers are already moving towards factory-gate pricing so why the need for regulatory coercion? If it is in the best interests of advisers, the market will evolve that way anyway and, if not, advisers will choose other strategies. Why not let the market decide?

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