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Commission closure

Banning an easy payment choice is not treating customers fairly.

I was “letting my fingers do the walking” with Yellow Pages. After the hi-fi manufacturers and wholesalers section came the intriguingly titled category of High Commission. Then I saw that it said underneath – see embassies and consulates.

Proving again, things are not always what they seem.

We recently read that the ABI is considering a ban on commission. My first reaction showed Victor Meldrew tendencies – namely that “I don’t believe it”.

Consider allegedly intelligent politicians trying to get pension policy right. There cannot be any IFA who thinks tax raids and introducing new rules and then changing them have been conducive to encouraging people to save.

My thoughts proved premature because later the ABI director of communications said the story did not represent the ABI’s policy, it is not seeking a ban on commission, the article was based on an out-of-date internal ABI discussion paper.

He went on to say: “The ABI will continue to work closely with member companies, the FSA, Aifa and others to understand how best to respond to their needs and what reforms, if any, are desirable.”

Most of us favour consumers having a choice of payment methods and some of us have been around for long enough to appreciate that to some consumers, and not only the less well-off, commission represents the easy payment method.

Some IFAs operate on a fee-only basis. I respect their courage in re-engineer-ing their businesses this way. For many, it has meant the creation of a strong and manageable base of fewer but more valuable clients all paying retainers. This has produced stability in their practices and an increased value in their own investment as business owners. The strength of that proposition is not to be underestimated.

However, I abhor the snobbery I have also witnessed where commission transactions are the Ronnie Corbett to their John Cleese.

“I look up to him, I look down to him” has no place in my world. We all want to be paid for what we do and whether it is disclosed commission, an hourly rate, a fixed fee, a percentage of funds under management or a retainer, the consumer bears the cost and it is disclosed.

The arrogance of some advisers that impartiality is not possible in a commission structure and that fees are beyond reproach is too simplistic. We can behave professionally, or unprofessionally, however we are paid.

I have seen lawyers’ bills where receiving a fax is a six-minute unit, reading it is a six-minute unit and replying to it another six-minute unit, so a little less arrogance about fee structures would not go amiss.

I have also had professional bills where the rate is increased because of particular urgency. Particularly urgent but not so important that it should have been previously disclosed.

Remuneration is part of the retail distribution review. There is talk of companies producing net-rate products, with advisers charging fees or increasing the product cost to receive payment from the product provider. Factory gate pricing they call it. It strikes me that it is the “way you tell ’em” because I thought that was broadly what happens now.

Former LIA president and prolific writer for the finan-cial press, the late Ken Clark, wrote of a patient who asked his surgeon to explain the cost of minor surgery. He replied: “Booking the operating theatre for half an hour £300, knowing where to cut £2,700.”

We, similarly, should not undervalue our experience and qualifications. Consumers have a right to know what our services cost. We have an obligation to the FSA to disclose those costs in writing and to deliver on our clients’ expectations. Banning an easy payment method is not treating customers fairly.

We are most in touch with consumers who bear the cost and whom regulation is required to protect. Consumers with choices. Advisers with choices. We should enter into the debate on remuneration intent on retaining that choice while contributing our views on improvements.

Len Warwick is chairman of Warwick Butchart Associates.


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