Immediately after the publication of the final rules for a depolarised regime, concerns are growing that the regulator’s calculation of market-average rates will disadvantage the sector by making most IFAs look more expensive than the average.
Aifa says the rates look low for some products, particularly those that factor in trail commission, and it has commissioned an actuary to look at the figures.
Pearson Jones director Nick Conyers says the market-average figure for investment bonds at 4.99 per cent is particularly low as many advisers charge over 7 per cent for investment bond business.
The FSA admits that the market average has been pushed down by the inclusion of execution-only business as the levels of commission will be lower for firms conducting this business than where only advised sales are concerned.
It says when execution-only business has been identified, it has asked product providers to remove it from their data submission but acknowledges that such business could not always be identified by providers.
The FSA has also decided to ignore the amount of commission that IFAs rebate outside the product terms, claiming that this is very low at less than 3 per cent of receivable commission.
Barclays Financial Planning managing director Jim Reeve says: “The market averages do look on the low side and there is therefore a danger that advisers will be seen to be overcharging.”
FSA director of retail policy Dan Waters says: “The inclusion of execution-only business and the exclusion of rebating is a minor issue. We have to make judgements at the margins.”