Like most other industry colleagues, I have read with interest some of the assorted coverage of the FSA’s forced U-turn on the payment menu and IDD and I have been surprised at the number of what appear to be quite inaccurate observations on the subject.
For example, David Severn is quoted as describing it as “the regulator’s decision to axe these documents”. Decision? Really? Did the FSA have a choice?
The European Comm-ission has decreed that the forced application of these documents is in breach of the Mifid rules so on what basis might the FSA continue to stipulate their use? (Treating customers fairly probably but let’s not go there today).
Reference is made to the menu having been ineffective in achieving its objective although this somewhat overlooks the fact that the FSA never spelt out for the benefit of those forced to use it just what that objective was.
Its very design made it pretty apparent that its principal objective was to make all IFAs look like commission-hungry rip-off merchants.
Bhupinder Anand describes the payment menu as a complete waste of time that actually hindered the relationship with clients in the sales process. Yes, it was another piece of paper (in duplicate) and, yes, it took extra time to go through with clients but the bottom line, as I see it, was to force better commission disclosure practice.
The methodology was a crock but the objective was sound, as stated by Ian Thorneycroft. What is wrong with the principle of equating commission to the value of service provided in advising a client with regard to a particular product?
This is the commission my firm will be paid, Mr Client. Would you be prepared to write a cheque for the same amount in settlement of a fee for the work we have undertaken for you?
In many cases, particularly investment bonds paying high levels of initial commission, I imagine the answer might well be no and a good thing, too.
If the objective of the payment menu was to eradicate abuse of the commission system, then that objective has my whole-hearted support and probably that of the vast majority of other honest IFAs.
The MCA has been tried and abandoned although the real reasons for this have never really been made clear and I do not believe for one moment that it had anything to do with it having been “anti-competitive”.
The banks are still grossly and brazenly uncompetitive and, even in the IFA community, commission abuse is still widespread so what has been achieved by scrapping the MCA? Nothing that I can see.
The way forward, in my view, is clean contracts with clearly defined minimal buying-in charges and completely transparent deductions to allow for remuneration of the adviser. Why need it be any more difficult than that? Once again, some clear and constructive comment from the powers that be at Canary Wharf might well be helpful to everyone. What chance of that, I wonder?
Partner, Harvest IFM