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FCA admits it will consider return to commission

Tracey McDermott FCA 700x450.jpg

FCA acting chief executive Tracey McDermott has admitted the Financial Advice Market Review may reintroduce some form of commission but claims the regulator will not reverse the RDR.

Money Marketing revealed last week that the FAMR panel was considering radical reforms in a bid to boost access to advice, including lower qualifications and a return to commission.

In an interview with BBC Radio 4’s Money Box programme McDermott said the regulator had received 290 responses to its FAMR consultation and would be examining those over the next month.

Asked whether it was true if a return to commission was on the table, McDermott said: “We do not want to go back to a world where we have the problems of pre-RDR. What we do want to look at is what is the best way of delivering advice and guidance across the market. So I wouldn’t rule out that there may be some element of commission, but we are not going to reverse the RDR.”

She also defended the FCA over claims that it was no longer independent of Government, after the regulator shelved an inquiry into pay and culture at banks, and following a decision not to publish its findings from its work on inducements.

McDermott said: “Nothing could be further from the truth. We are not going soft on the banks, we are not being told what to do by the Government.

“We have objectives which are set for us by parliament in statute, and we are determined to deliver on those.

“If you look at what we have been doing over the past six months while I have been in the role as chief executive, you will see that we have continued to take action against the industry, both in terms of penalties on firms and individuals, and absolutely delivering the right outcomes for consumers in financial markets.”

She added the FCA did hold banks to account where appropriate.



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There are 29 comments at the moment, we would love to hear your opinion too.

  1. Can someone enlarge upon what the RDR has brought that is so different, if removal of commission and higher qualification requirements are stripped out of the equation?

  2. paolo standerwick 11th January 2016 at 9:47 am

    It would be nice if the regulatory staff admitted they were wrong to remove commissions within RDR. Many advisers wouldn’t have lost their jobs and the younger generation would not have been disengaged from being persuaded to save!

  3. She went on to say that the return of Santander to the advice market and this “dumbing down” were in no way connected; also that the Treasury wasn’t pulling the strings. Really?

  4. How nice to be tied to statute when the longstop defence, which is also tied to statute, is conveniently ignored.

    Let’s be clear, this is not a U-turn. Ha ha.

  5. Trevor Harrington 11th January 2016 at 10:25 am

    Can we please have a maximum commission agreement as well then – as indeed the more enlightened of us have been saying for 25 years?
    Also we need a compulsory share down of trail to the adviser who is dealing with the client.

    I suggest maximum commission of 3% on contributions plus 0.5%pa of fund for trail, with a 50% minimum share down of the trail to the adviser.

    This will equate to about 150 to 250 clients per adviser, depending on the depth and value of the client service proposition, resulting in gross revenues of between £75,000 and £500,000 per annum per adviser.

  6. They will never admit the damage that RDR has done to the public. May I suggest that The Heath Report made FAMR more likely and that Libertatem can create real change if supported by Advisers.

    We cannot change the incestuous relationship the banks have with the FCA so Let’s get the advisers out of there and into a place of safety. See:
    and contribute to the fighting fund.

    @ Paolo – When you coming to join us?

  7. It would be nice, if someone at the FCA, could admit, that they got it wrong and that the RDR has cost jobs and most important, the population that really need advice, have been priced out of the advice arena and have nowhere to go.

  8. In November, I was asked by Harriet Baldwin MP (who many may remember came to a Panacea ‘Meet the MP’s event” shortly after her election in 2010) to contribute to the HM Treasury Financial Advice Market Review (FAMR) due to the size, influence and knowledge of the Panacea community.

    When asked “How to encourage a healthy demand side for financial advice, including addressing barriers which put consumers off seeking advice?

    I said that :

    “Consumers should understand that advice comes at a price but that price and the method of how it is actually paid should be determined by the client and adviser firm together and not a regulator.
    Is commission still a dirty word?

    It was very clear that there was a considerable lack of understanding around many issues of IFA concern. I think this is because there is a knowledge gap, possibly caused by a failure or desire to fully understand how intermediated distribution works and why. And to understand advice responsibility anomalies such as the current lack of longstop.

    It is also clear that regulators do not understand that savings and protection products are sold to the mass market, not actively purchased.

    We went on to discuss the Maximum Commission Agreement (MCA), The Treasury and the FCA appear to have no knowledge of the workings or long history of commission payments, the maximum commission agreement or its crazy reason for removal.

    The return of some form of MCA could help gain access to advice for the mass market consumer.

    It should also be remembered that the FSA almost pulled out of the RDR and was well aware in it’s deliberations that the revival of the MCA could have been a solution to part of the problems the RDR was trying to solve.

    Ask Richard Hobbs.

    The one-off RDR cost to firms “could hit £1.5bn” said Natalie Holt in 2015 with total costs reaching up to £2.6bn after five years.

    As they say, “you could not make this up”?

    Derek Bradley

  9. So whilst they mull over a return of commission it would be nice if they halted any further damage from the incoming removal of further commission via the “sunset clause” that was tagged on to the RDR rules anyway.

  10. The regulator will not reverse RDR. What they are going to do is stop investigating the banks cultures, introduce commission and lower the qualifications on simple products, so their bank friends can return to the market and their old ways. The banks could not remain as they estimated the cost to be £200 per hour for advice or as they sold it 7% commission.

    Does the regulator really believe they can stand in public and state this without being laughed out of the room. How many billions have been wasted? what little credibility the regulator has would be shattered if this is implemented.

    I also wonder is this more about the advisers questioning, challenging the regulator so we do not become the escape goats, by refusing to implement poor outcomes. Has this worried the regulator sufficiently to give the banks their way back into the market offering poor sold products.

    If this were to be allowed it would be a complete back track, admission they were wrong and should be the final death nail for proof regulation does not work.

  11. Regardless of your like, dislike or loathing of commission, it was a way to allow those who did not want (or could not afford) to pay the level of fee that we need to profitably provide the service we do.
    I really don’t know the Regulator has never actually done any kind of research to see what the general public would prefer, fees or commission? Well, thats not true. I think I do know, as do the vast majority of us. It may not have been Euphoria but atlas the client had a choice and could make their own decision based on their preference.
    A lot of the pro-fee supporters on here seem to slate commission and say how its bias lead to bias, but don’t forget even the FSA at the time had to do a second (re worded) survey to establish that a perception of bias should exist because they could not find existence of bias in their 1st survey.
    You don’t even need the MCA if commission is brought back if the system of payment remains an agreement (and in my view it should definitely remain) between the client and adviser. We don’t need the industry to spend many tens of millions/hundreds of millions more creating a new system.
    Just allow the client and the adviser to agree payment terms between them, i.e. how much and how it is to be paid, and the get on with it.
    The FCA will never admit they got it catastrophically wrong with RDR with huge costs involved for a monumental error(s). They will simply keep on trying to get the world to fit to their ideas of how they think it should be. Square peg, round hole keeps coming to mind.
    Lets just hope the FMAR brings some client choice into the equation because we are all trying to do the best job we can for our clients and if it can be made easier then that will be superb.

  12. Trevor Harrington 11th January 2016 at 12:13 pm

    Lets not re-invent the wheel …

    Commission was bad …. no doubt whatsoever … but it was only bad if it was in the wrong hands and if it was the wrong amount.
    There was no cap on the amounts, AND there was no sharing down to the adviser of the trail and/or the renewal.

    I repeat (see comment above) – maximum commission of 3% of contributions and 0.5% pa of trail, WITH a compulsory share down of the trail of 50% (ie 0.25% per annum) to the adviser who is dealing with the client.

    Advisers must be motivated to see the client regularly WITHOUT being motivated to sell them something every time they meet.
    Advisers must be financially motivated to provide SERVICE.
    Clients must be looked after for the LONG TERM.

  13. Commission is paid for out of contract charges which are in turn paid for by the client.

    If a client doesn’t want to pay for advice, is it fair for them to pay for advice without realising it or, alternatively, realising the true cost?

    Since RDR it is demonstrable that the adviser is working for the client. Client Agreed Remuneration puts the client in control – giving them the power to decide whether the adviser’s services are appropriate and whether there is VFM.

    I am therefore interested in what circumstances a return to commission would be beneficial for anyone other than advisers (or perhaps providers who want to return to the days of implying their advice is ‘free’ whereas an IFA ‘charges a fee’).

    We are yet to turn a client away due to the fact ‘their pot is too small’. Instead we build a service which suits the client needs.

    IMO most historic consumer detriment is commission driven – and it still goes on with UCIS and offshore unregulated ‘stuff’.

    I’m afraid there is a vested interest in a return to commissions, and it’s likely to be not the clients!

    • But this isn’t an argument that reason will win and I guess we all know that. They’re coming back in and on terms that allow them to function, whether we, the advice sector, find the terms suitable or not. We are but small fish in a vast pond 🙂

  14. So what she’s really saying is that the FCA is prepared to listen to so-called consumer groups like WHICH and others who in effect are steering this debate to lower the level of regulation and qualification so they can give financial advice through their magazine and other formats, without paying FEES.

    They are not the only one who wants to do this type of service i.e. our defender of so-called consumer rights Martin Lewis who is busy selling financial advice through paid for links.

    Is it a no wonder these people want to have a lowering of the regulations and where is the protection for financial advisers who after all pay quite considerable amounts of money collectively to fund the regulator.

    Instead of lowering the regulations for exams and minimum standards may be the regulator should concentrate on enforcement and encouraging people to come into the profession. Is it no wonder why financial advisers are unwilling to train individuals when the rules keep changing every five seconds.

    It’s the banks, building societies and online providers who in my opinion have given consumers crap advice who seem to be rewarded in this new process rather than IFA’s who have the lowest complaints record and provide some of the best customer service.

    What we need is more qualified, ethical and most of all supported advisers!

  15. Smug doesn’t even come close to how an awful lot of financial advisers are feeling just now.

    To say this is farcical doesn’t even get remotely near the reality of this regulator and its absurd regulation.

    RDR – remind me of the cost again ?

    MMR – bet there are a few keeping their heads down up at Canary Towers right now

    As has previously been stated by many, heads should roll and regulation as we know it should be burnt down its simply not fit for purpose.

    Still at least it illustrates market force works (at least in the case of the big operators) – I’m surprised it didn’t take a restriction of trade judicial review to reverse it but hey there we go.

  16. To make a statement of “commission is bad” is too far.
    I have some very good clients who originally paid for my services via commission. At the time, they couldnt afford to pay for me directly or preferred to ‘overpay on a AMC’s’ for the first x amount of years on their plan.

    Taking commission away, took away the clients freedom choice

  17. Five years ago I debated commission with Andrew Fisher (ex Towry). He rattled on about how heinous it was and how damaging to the consumer.

    At the end of the debate he acknowledged that it had its uses.

    Pity the regulator was not similarly open to persuasion before the RDR experiment was ratified.

    Re the maximum commission agreement – let’s not forget that was Sir Gordon Borrie at the OFT who ended the previous agreement complaining that it was anticompetitive and that once removed commission would fall as dictated by market forces. It actually went up around 40%, as dictated by market forces.

  18. Really ?

    With so many other things wrong with this industry,…. regulation itself being the number one burden to new and existing firms, unnecessary and confusing paperwork, costs ?

    It wouldn’t change a single thing with the reintroduction of “commission” although it may kick start some kind of normality to the regular premium market (my regular premiums for new investments has been nil for 3yrs)

    I echo dick sprinkler’s comments above !

  19. Disgusting, disgraceful. All this yet again goes to prove what I and many others have maintained over the years since Crash Gordon invented the ‘new’ regulation.

    The Regulator is independent as long as things go according to government plans, when things go wrong the Govt. has the convenient excuse “It ain’t us guv – it’s those independent regulators”.

    No wonder Tracey didn’t want the hot seat – you’re better off out of it, love. It is also the possible reason why Mr Wheatley was given the heave-ho.

    ‘Orrible Osborne has his fingerprints all over it.

  20. Oh Lord, give me the strength to tolerate these people that regulate our industry and live in hope that one day they will listen to the people that have the experience and expertise in this industry! What a bunch of idiots wasting all our money!

  21. Shocked but not shocked sums it up for me.

  22. I’m trying to work out what might be the difference between and adviser charge and commissions. The only thing I can come up with is that commissions are hidden and an adviser charge is agreed with the client. It would seem a backwards step to go back to 110% allocations with exit penalties and initial units – is that really what we want?

    So actually all we should really be looking at is some kind of factoring to make an adviser charge work for both client and adviser on a regular premium plan. That can’t be too hard can it?

    Few words can describe the loathing and contempt with which I hold our regulators. They never listen but always know best.

    • @ Soren “It would seem a backwards step to go back to 110% allocations with exit penalties and initial units – is that really what we want? “….
      I wish advisers etc would realise it is NOT what we want …its what the clients want, they want to access financial advice , they want options how to pay ( this includes commission) , if they are committed investors why not have an allocation rate of 110% , clients do benefit from these types of contract ( ie. on death)

      What the industry should do is listen to their customers ,

  23. Re Soren Lorenson’s comment above-SJP will be delighted.

  24. Trevor Harrington 11th January 2016 at 8:02 pm

    If anyone is guilty of not listening, some of you guys above will fall into that category beautifully.

    I repeat –
    NO indemnity commission.
    3% on initials.
    0.5% pa on trail, with a compulsory payment of half of that to the actual adviser.
    Commissions to be declared in £s on the front page of compulsory illustrations – signed by the client if you wish – or with hard disclosure reason why letters.

    Sounds like fees, doesn’t it – except without the open end to charge just what the hell you want and call it an invoiced fee for your time, which you DID NOT PUT IN.

    The important element of this is the COMPULSORY payment of a proportion of the trail to the adviser who is dealing with the client.
    This will engender client care and longevity of service from the actual adviser, and reduces (nearly eliminates) the risk of churning, and unnecessary sales. It also engenders the need for investment performance (fund switching) and regular reviews.

    I know it works because I did it from a standing start in 1990 to 2008, building 12 advisers, 2,500 real clients, trail stream of £380,000, annual revenues including trail of £850,000, and no complaints – business sold for £950,000 in 2008.

  25. Need a return to commission on regular contribution products be any more complicated than indemnified customer-agreed adviser charging? Okay, the allocation rate for the first couple of years would have to reflect this, but it would be a clear and workable mechanism to deal with the obstacle often posed by what are perceived to be large separate fees. The objective, after all, is to make it easier for people to start saving/investing.

  26. One word – commercial !!

    The world is commercial ! financial services is not because of absurd anti competitive regulation. Let markets (and therefore clients) decide. If they want to charge/pay fees they will, if they like commission they’ll opt for that. Then the commercial realities of the market will determine who thrives – there is room for both. Those that cannot thrive will fail. That is the reality of a commercial world.

    As I previously pointed out, I am amazed that it didn’t take a judicial review from a big operator or a class action (based on restriction of trade in a commercial world) to start reversing this whole thing.

    But even now there appear to be those trying to reinvent the wheel !

  27. All you self opinionated holier than thou qualified advisors need to reflect on just how you have ruined the financial services industry! You have failed abysmally to give any valued advice!

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