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Commission at the heart of fear of RDR

One of the striking things about the debate over the RDR is that of how, primarily, its focus appears to be on the issue of exams and the additional qualifications many IFAs will be required to obtain by December 2012.

Every time I write on the subject, I can almost guarantee that in addition to the many comments posted on Money Marketing’s website, another dozen emails from IFAs, sometimes many more, will drop into my inbox.

Forget the website comments for a minute, it is the emails that are more interesting, mainly because their writers usually provide me with a pen portrait of themselves to illustrate the points they are making.

Virtually none of those emails – and I am happy to be corrected by those who have not given me their ages – comes from IFAs in their late 40s or younger. Barely one or two are from IFAs in their early 50s. In almost every case, they are from advisers who have come to what one might normally consider the end of their working careers.

They are always in their late 50s or early 60s, have soldiered on for decades in the financial services industry and have built up small but financially rewarding careers that, ordinarily, they might have hoped to maintain for up to another decade.

To this small but vociferous group, a requirement for additional qualifications is both costly and time-consuming. They do not know how long they might remain in the industry and are weighing up the costs and benefits involved.

For someone who was intending to stay on a few months or even a year after December 2012, my guess is the decision has already been made.

For others who are intending to stick around a bit longer, the matter is more complicated. If the question they are being required to consider were solely that of taking some exams, that might just about be bearable.

OK, there are 100 to 150 hours of study involved. It might even cost up to a couple of grand to backfill or do whatever is necessary to evidence their new status.

But if you are planning on staying in the industry for at least two or three years after December 2012, then it might almost be worthwhile going through the hassle of sitting down for a few hours with a book that isn’t the latest Frederick Forsyth.

Which is why, for me, I do not actually believe that all the furore generated over the RDR is really about exam qualifications – and why trade bodies that talk about slowing down the speed of its implementation or make vague demands for some limited form of grandfathering are missing the point.

IFAs opposed to the RDR have a totally different matter in mind, for which qualifications are merely a proxy symbol of their frustration and anger.

The real issue that they feel upset about is the one that rarely raises its head in this debate – but which is far more important to their businesses – commission versus fees.

Deep down, the problem is that thousands of IFAs have become extremely comfortable being paid on a commission-based basis. Sure, the more ethical ones will turn down some of the more outrageous payments on offer for sales of certain products. Others will take commission and offset it against fees.

But, for many, commission, become structurally necessary to their businesses and weaning themselves off will be a major challenge, one that many fear they will be unable to carry through.

One of the reasons for this is that, for many decades now, clients have become used to the cosy – and totally unreal – assumption that advice is free and it is only the transaction that might cost them money. As long as that money is not coming directly out of their pocket, they are not likely to complain.

Financial advisers have often colluded with this naive belief and are now getting their comeuppance.

That is why I believe at the heart of all the guff being spouted on the subject of the RDR, the main factor that will drive advisers out of the business will be their inability to convert clients to some form of fee-based model. Or their fear of the same.

It is worth noting here that the FSA/Oxera survey everyone seems to talk about when discussing IFAs departing this industry does not really distinguish between the reasons why they might do so.

If that had been the case, then most of the contributions so helpfully provided by IFA organisations to various Parliamentary committees in recent months about the “denial of access to independent financial advice” allegedly faced by millions of consumers might have a slightly different flavour.

After all, it is one thing to tell MPs that hundreds, if not thousands of IFAs might be “forced” out of the industry because of the FSA’s unreasonable demands for higher qualifications. But it is quite another to have to admit that the reason why the majority might leave is because they are too scared to operate a more transparent charging structure.

Nic Cicutti can be contacted at


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There are 23 comments at the moment, we would love to hear your opinion too.

  1. Nice and controversial Nic. No doubt you will be burnt at the stake now.

    I think the real issue here is that the banning of commission will threaten peoples jobs (don’t just think about the IFA think about the back office staff) so why shouldn’t they be concerned.

    It is quite clear (only the FSA cant see it) that Joe Public cant see the value in advice as he thinks he can get advice off the Web (the lines between advice and statements have been blurred) and as such wont pay explicit fees unless they have to (solicitors, accountants et al).

    Maybe if there were certain areas of advice that could only be provided by Independent Financial Advisers (pensions transfers and retirement for example) then fees would be a more palatable meal.

    I also think that you are doing IFA’s a dis-service by suggesting that the only reason they are against RDR is because of pure greed.

    Many of the ‘champions’ of RDR forget to mention that they have ‘orphan’ clients that bring in a nice little earner for very little output and as such are able to operate on a fee basis going forward as their overheads are covered.

    Once again you have done your job by writing an article that will no doubt elicit plenty of responses.

  2. Nic

    Purposely or otherwise you are attempting to dumb-down the arguments of the majority of advisers who have negative feelings about the RDR.

    Of course advisers feel threatened. Nobody likes having office block theorists practicing their economic and social experiments on them and their clients.

    However, the main arguments against the RDR are not so much self-interest as the woeful impact on the country as a result of consumers losing their advisers, losing their choice of how to pay for advice/products and losing their understanding of the word ‘independent’.

    Underscoring this is the shameful idea that ‘simplified advice’ will resolve this vacuum together with whatever variation of money guidance is then in vogue.

    The real problem, Nic, is that Joe Public will not get any advice. He will sit back on his cushioned sofa and carry on watching Shameless rather than confront the financial issues at hand.

  3. The only thing that’s going is indemnity commission on regular premium products and one or two of the networks are already planning factoring arrangements of their own for their members. Otherwise, commission will be renamed an Adviser Charge requiring the client’s signed agreement. I don’t know what the proportion is, but, as far as I’m aware, many IFA’s already operate on the basis of CA Commission, so the transition to CA Adviser Charging is hardly likely to cause any particular difficulties.

    The only bodies likely to find the new regime problematic will be those used to taking commission of 6% or more for flogging bonds, with the amount not revealed to the client until after the sale has been done and then only by way of a footnote on page 7 of an illustration which probably doesn’t get read thoroughly anyway.

    So, on quite what data the opinions expressed in this article are based we don’t really know. Perhaps it’s just a matter of Nic stirring the brown stuff again without really knowing what he’s talking about.

  4. I am not in full agreement that the exams do not fill some with so much dread they will retire, the lack of knowledge of some in this industry is astounding.

    Regarding commission how earth will ‘Joe Public’ ever buy into the fee based model if those trying to sell it don’t believe in it. Therefore what we will get is a self -fulfilling prophecy for some, those that embrace it will clean up as the amateurs truly are replaced by the professionals.

  5. And there you have it Nic, RDR is nothing to do with educational excellence its all about shaking the tree.Getting rid of commission gets rid of IFA’s, typical FSA thinking !! This will not be the case, however, and their clandestine love affair with the banks will continue to breed contempt from those of us who do a truly professional job of work for the client. Did you know that most structured produtcs currently being offerred by the banks pay up to 7% commission ? I think we all know who are filling their boots prior to RDR implementation. The FSA and the latest coaltion Government are not fit for purpose where the subject of financial planning advice for the public is concerned.

  6. I do get fed up when I’m told what I believe, and what my real reasons are, when in fact the opposite is the truth.
    I received trail this month on an investment I arranged in 2002, that has been my business model for longer than that and I have no fear of the loss of the commission option in the future. I just can’t hack these exams.
    Unless I suddenly improve my memory retention, unlikely at my age don’t you think (66), I will lose the income that I have built up and my clients will lose their adviser. There may be those who would bemoan the end of commission. Well not me. Now J05 etc, that’s quite a different matter.

  7. Make your mind up nic. Last week it was the demands of the regulator. This week it is commission.
    What will it be next week?
    Probably whatever you think will get the most posts.
    Maybe you get commission every time someone makes a response and that is why you cannot produce a decent piece of writing.
    What will happen to an old hack like you after the RDR. You are only able to write derogatory articles against IFAs. After the RDR, we will have no commission and the place littered with professional new model advisers, a financial utopia for you and the regulator.When will you realise that no one reads your articles for their literary content?
    IFAs hate you and the FSA probably think of you as a useful idiot.
    MM please take that smug, self satisfied, self righteous, cheshire cat like picture of nic off the front page. It is about as appealing as the one of Hector with the inane grin that you insist on publishing

  8. Tell me Nick are you divorced? If not can I suggest you go to your solicitor or better still allow your solicitor to attend your house, charge you to attend and then charge you to advise on the divorce yet to occur – that might in fact not occur.
    This is in fact what is being proposed by RDR and the result will be that a number of products will end up of the shelf, because clients will not pay to resolve an event yet to occur. Intangible products are sold and not bought and this is where we differ from other professional who charge a fee to resolve an event that has occurred, a divorce, a persoanl injury a bankrupcy or even a tax return. Consider Stakeholder pensions. I don’t recall what you said about those but no doubt is was the same message i.e. that consumers would pay a fee to be persuaded to fund their retirement! How wrong this has proved to be and how wrong RDR will prove to be.

  9. Oh please, get off your ivory tower, what the hell do you know about running an IFA buisness? I am in the 50+ catagory, have been on the fee/fbr/comm basis since adam was a boy, have a Diploma and in favour of RDR, if you would stop thinking about ways a denigrating all and sundry and support the positives we’ll all be in a better place, grow up and stop telling us all what you think. I don’t care if a client pays fees or wants me take commission, it’s disclosed up front and agreed, end of.

  10. Of course he is divorced Simon. Either that or he has never married.
    Who on earth could live with a prat like nic.

  11. Of course he is divorced Simon. Either that or he never married. Could you imagine any woman putting up with nasty nic?

  12. I actually agree with Nic’s main points. I see that Julian and Fraser do too, although they give the impression of dissent.

    For the very life of me I cannot understand why anyone is against the new system. Julian spells it out. For those of us that have charged fees for years we get paid whether or not there is a transaction. So it seems to satisfy all parties.

    I have therefore to agree with Nic that the only possible reason for those advocating commission is fear of transparency. If your client is so dense that he/she doesn’t realise that either way they pay and that the new system just makes things clearer, then I wonder why you bother.

    On the other hand if an adviser obstinately refuses to examine the new system and work his way through it, then I wonder how you manage to do up your shoelaces.

    Oh and Nic don’t be too ageist. As of last October I officially became an OAP. (Although not currently drawing any pension). I do get asked when I’m going to retire. My answer is – Before Sigmund Warburg did and probably earlier than Warren Buffet. I still happen to believe that we Baby Boomers in general are better educated and more entrepreneurial than the generations that have followed. (But that’s probably an age thing!)

  13. Damn you Nic, my bacon has just fell out my butty ! serves me right for eating over my keyboard, still at age 63 what else can one do, soon i won’t be able to afford bacon butties anyway or is that butty’s, so why worry ! anyone want to buy a slightly, used rashser of bacon? much more interesting than reading this absolute nonsense fom this slightly tedious and boring guy..

  14. Incompetent Regulators Award Team 17th April 2011 at 11:14 am

    Nic,once again you haven’t listened RDR is sympton of a rotten and bad regulator. PERIOD.

  15. Nic, oh dear. An article designed to get lots of ranting from IFAs, and we all pretty much agree with you! Oops….there goes the controversy angle 🙂

    I think you need to try harder to wind people up :))

  16. Of course he is correct.

    If the trade media and AIFA etc were not sponsored wholly by providers they would have been saying this for the last couple of years.

    All of the claptrap about the public not being able/willing to pay has been initiated by the providers to help them with their campaign to keep control over advisers through remuneration.

    The rubbish about qualifications has been well supported by providers to produce a rationale for keeping commission that says at least the RDR has improved the educational standards of advisers so commission will be OK.

    It is all a load of …ocks to support lazy unimaginative advisers who should in reality be part of a tied sales force rather than pretending to be ” independent “.

  17. Fee-based unit trust advisers (FUTAs) do not understand that when IFAs are deprived of wholesale supplies IFAs will disappear, and that will include the FUTAs. There will be no need for IFAs in the market. If FUTAs think RDR is merely clearing the ground for their existing business model then their naivety knows no bounds. Banning commission will completely reorganise the way financial products are marketed.

  18. Jeremy Newbegin 17th April 2011 at 4:03 pm

    Not for me Nic so I am clearly out of sinc. For me it’s the changing of goal posts to prevent me doing what I have been doing for thirty two years. Exams are NOT the be all and end all of good advice. Everyone knows that and yet no one listens. Clients will suffer most from losing their adviser. Does anyone listen?

  19. If you’re all so good at being IFAs, why are you so scared of sitting exams for which the studying may mean less time playing golf, while the costs can be covered by one reasonable case?

    RDR is here, it’s not going to change get on with the exams and get your businesses in order.

    “end of” – what a stupid way to end a post…

  20. Having researched the growth of very similar funds in a bond, unit trust and investment trust over 5, 10 and 15 yrs, it is amazing to see the difference in the final pot. If they are payed the same amount of commission would that mean no one would sell bonds.

  21. Alistair Paterson 18th April 2011 at 10:34 am

    Like many other respondents, I am pushing 50, have been an IFA for over 30 years and do not fear RDR, or exams, at all. I am already three down of my 7 required and I am not finding them stretching, given my experience. However, please, let’s get some sensible focus on the FSA commission ban. This has nothing to do with client benefit and everything to do with a long standing abmition by HMRC to get VAT on IFA incomes. They now have their champion in the FSA. That is what this is all about, nothing more. For years, we have been calculating fee equivalent commission rates as routine, and charging clients commission instead of fees at the same rate, thus avoiding VAT. Nic, how will it benefit my clients to pay 20% more for the same advice? Not expecting an answer to that one, Nic, as it isn’t sufficiently sensational.

  22. For my pennyworth, I have always been delighted to disclose charges / fees / commission whatever to clients and am fully in support of transparency in all its guises.
    Of course new entrants to an industry should take the newest exams.
    What I strongly object to is the FSA retrospectively cancelling the exams and qualifications I have passed and ignoring the CPD used to stay up to date.
    If all other professions such as doctors, accountants and lawyers are happy to see all their qualifications cancelled and agree to re-sit them each time there is a new syllabus then I could not expect IFAs to be singled out for grandfathering.
    Until that cold day in hell, I want to be treated fairly just like they are. For those of us qualified today we should remain qualified post RDR provided we keep up the prescribed CPD.

  23. @ Harry Katz | 15 Apr 2011 4:36 pm 19th April 2011 at 9:33 am

    Good old Harry Katz – he agrees with Nasty Nic.

    Harry I use you and your views as a benchmark to measure the health of this industy. I have no problems with your views but the day I “ever” agree with you on “any” point will be the day when I know this industry is dead for sure – ka·put! f course your views have been taken on board as representative by AIFA and look where that has got us!

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