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Commission is not the root of evil

Is commission, per se, a bad form of remuneration? I am unaware of anyone claiming that it is, not even the FSA.

Does commission-based advice routinely cost more than fee-based advice? No, it does not, particularly when you factor in VAT and the extra admin costs of collecting fees.

Are fees more transparent than commission? Not always. The quantities of paper required to support most recommendations must surely make commission easier to hide than fees but how do you prove that your adviser spent the six hours on your affairs for which he has billed you when perhaps he only spent five hours?

Is your fee-based adviser worth £150 + VAT per hour? From what I hear surprisingly often, there are many solicitors out there who are not. Is commission-based advice more likely to be product-sale-biased than fee-based advice? Almost certainly. But do fee-based advisory practices always provide better value, overall, for the services they provide? Difficult to say.

Is it easier to work at a loss on a commission basis? You bet, not least due to the dire standards of life office administration with which we have to battle daily.

Is the scope for remuneration abuse greater with commissions than fees? Absolutely. Such abuses are so common and so frequently reported on that one has to wonder why the FSA is burdening the industry with distorted payment menus which serve primarily merely to muddy the waters further instead clarifying them for the poor old consumer.

Why does the FSA not simply stipulate that all commission must be disclosed in writing, quite separately from any standard life office illustration and that the client must confirm in writing his agreement to the level of commission proposed before any application forms are signed?

And why is there (apparently) no pressure to move away from indemnity commission? This was the root cause of endowment misselling. As an established business, we try to write as much of our commission-based business as possible on non-indemnity terms.

The present debate seems to ignore most of these issues. Changes are required but banning commission, as some people propose, would simply put two-thirds of the advisory community out of business . That would hardly help consumers, many of whom are well served by open and transparent commission arrangements with their present advisers.

The evil is not commission itself but the abuse of the present system and until attention is focused on that, the banks and building societies will continue to get away with flogging bonds on 7 per cent initial commission and no trail to fund anything in the way of ongoing service.

Julian Stevens
Partner, WDS IFAs, BRISTOL

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