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FSA retail distribution review will target commission

FSA managing director Clive Briault has highlighted commission as one of the five priorities of its forthcoming retail distribution review but says it has not concluded that commission is bad and should be banned altogether.

Speaking at a conference on asset management in UK Life and Pensions hosted by Cazalet Consulting, Briault said the FSA is not an economic regulator and said the impetus for change must come from the industry.
He echoed Sir Callum McCarthy’s comments that the present business model in life and pensions is rife with churn and unsustainable business, which is to the detriment of providers, advisers and consumers.
Briault hit out at city analysts, expressing his surprise at the lack of probing questions about the profitability of life offices coming from the sector.
But welcomed the fact that some life offices are stressing the importance of net business figures and said he supported the ABI’s increased focus on in-force business.
Although Briault insisted the FSA has not concluded that commission is inherently bad he said previous studies had made it clear that commission levels cause provider bias, otherwise providers would not raise and lower commission payments. He said there is also clear evidence of product bias caused by varying commission levels.
He said the aim of the review, the results of which will be announced next July, will be to understand how commission leads to consumer detriment through product bias and its impact on the sales process and the competence level of advisers.
It will also seek to address the associated problems of sustainability, professionalism in the market, consumer access to financial services products and regulatory barriers and enablers.
He said working groups made up of industry members, stakeholders and FSA staff would be set up to look at solutions and alternative payment models and that regulatory changes would be introduced if necessary to facilitate reform.

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