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Ellis says case growing to axe commission

The FSA’s latest damning report on the advice sector will increase calls to scrap commission and could even force the industry to revisit CP121, says Personal Finance Society public affairs director John Ellis.

Last week, the FSA published the results of its quality of advice mystery-shopping exercise designed to establish how well firms are embedding the principles of the treating customers fairly regime into their businesses.

The report was slammed by Aifa for failing to distinguish between IFAs, tied firms and bancassurers.

The FSA says it found worrying levels of commission bias, with less than a third of the 50 firms surveyed prepared to give their clients non-commission-earning advice, such as recommending debt repayment before other investment products.

Ellis says the report strengthens the case to replace commission with a system of factory-gate pricing, where the cost of the advice is explained to the customer at the outset but factored into the price of the product rather than in an up-front fee.

He says the findings may even prompt the industry to revisit the possibility of the defined-payment system, outlined in the FSA CP121 in 2002. The FSA dropped plans for the system for IFAs when most of the industry said it would not be workable.

The findings have played into the hands of the financial services consumer panel, which recently accused the advice sector of commission bias and plans to table an alternative payment system to replace commission next year.

Panel chairman John Howard says: “This reinforces our views and shows there is an urgent need to reopen the debate on commission.”

Ellis says: “This raises enormous questions over the future of commission.”


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