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IFAs clear of bias in commission probe

IFAs have been cleared of commission bias by ABI research but its investigation calls for greater transparency in relation to ongoing commission.

It concludes that commission is good for the consumer although it could be improved. But the report also calls for the abolition of indemnity commission.

The research was carried out by Charles River Associates and found no evidence of prevalent bias across the advice market, no evidence of a bias to oversell and no evidence of provider bias on regularpremium products.

CRA did find limited evidence of bias over which prov-ider was selected by an intermediary although it said this problem was only related to the selection of Isas.

The report claims that in 17 per cent of cases, Isas were not recommended by IFAs when they should have been but this figure is relatively low and had not changed since similar research was conducted in 2001.

It found considerable differences between the structure of commission across products and providers despite products meeting similar consumer requirements.

CRA claims there was evidence in 10 per cent of cases that IFAs were not giving suitable advice, for example, not recommending repayment of credit card debt before investing.

Alan Steel Asset Management director Graham Currie says: “The industry has to start looking at the long-term value of the client rather than the short-term value of commission. Any IFA serious about the business needs to look at whether they are doing a good job for their clients.”

CRA principal Tim Wilsdon says: “Commission is not dead, it is really working for consumers in a lot of cases but we want to make it work better. There is a growing issue with trail building up over a long-term relationship and we think that issue is better addressed sooner rather than later.”

The consultancy carried out research for the FSA on depolarisation in 2001 and research into the payment menu for Aifa in 2003.

Annual commission statements should be sent to clientsA radical simplification of commission structures, ideally one commission structure for each type of productIndemnity commission should be abolishedThe same structure should be introduced for equivalent productsCommission should encourage the right advice to be given to clientsCustomers should have the right to ask the provider to move commission payments for ongoing service to another adviser or to stop them altogether in exchange for lower product chargesThe ABI should undertake more mystery shopping to check the quality of advice given on its members’ products

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