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FSA paper claims commission bias makes Catmarked plans a necessity

An FSA policy research paper is attacking commission-based sales of stakeholder and other products, claiming they increase the need for consumer protection.

The paper examines the role of Catmarks and stakeholder in financial regulation and claims consumer protection standards are difficult to enforce because of the “natural incentives created by a commission-based sales system”.

It says benchmarked products are a necessity to keep the bias created by commission-based sales in check and maintain consumer protection standards.

The paper by Paul Johnson, head of the FSA&#39s economics of financial regulation department, says a comprehensive regulatory framework covering best advice and suitability is not enough to protect consumers.

Johnson says consumers are left vulnerable by the complexity of financial products and the existence of commission-based sales. He concludes that benchmarked products add a necessary extra layer to the regulatory framework.

Johnson says: “The problems of information and incentives in the financial services area are so great that directly setting product standards may well be the best way of ensuring adequate products are available.

“Benchmark product standards should provide an extra element of safety, especially for those with lower incomes and lower levels of financial understanding.”

Scottish Life head of communications Alasdair Buchanan says: “If you look at the requirements IFAs have to meet to demonstrate best advice, the notion in this report that commission introduces some kind of bias will be insulting to the vast majority of IFAs.

“It is not clear stakeholder and Catmarks will help guarantee people buy the right product more than profess-ional advice, whether it is paid for by fees or commission.”


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