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Leader: Commission debate is more nuanced than you think

Natalie Holt, journalist with Money Marketing Photo by Michael Walter/Troika

Cost and value. The two terms may be interchangeable for some, but when applied to advice they can have very different connotations. The prospect of a return to commission, as first reported in these pages earlier this month, has inevitably prompted a heated debate among advisers and the wider industry.

It begs the question: can we get to a place where switching up the charging models for advice makes it more accessible? And can this be achieved without damaging the value of advice, a concept that has been hard fought over the last three years?

The reason this has been brought to the fore, of course, is there is a concerted effort to try and plug the advice gap. The argument goes that by bringing back some form of commission, the banks, providers, and fund groups could push the reset button and go back to delivering mass market advice.

The saving grace of the new commission model is it looks different from the old commission structures in two key ways: it would be the same regardless of provider, and would only be applied to basic accumulation products.

Where I start to be wary is whether we really want to be bending over backwards to invite the banks back into advice.

The saying goes that “something is better than nothing”.

But the families of the elderly HSBC customers flogged unsuitable products to pay for long-term care, or the cautious investors told by Barclays to invest their savings in what turned out to be an adventurous Aviva income fund would beg to differ. There are no doubt countless other examples which underline that there was a lot wrong with the mechanics of commission in the past.

It is also unclear how the new-look commission model would interact with cross-selling other products. If other investments and pensions products are tacked on to the basic, commission-paying stuff, presumably this will be paid through an advice charge. How would this two-tier payment system then be disclosed?

But the commission issue is not black and white. No one wants to stand in the way of something, however unpalatable, that could be the turning point in delivering advice to more consumers. I am also alive to the reality that in some parts of the market, such as protection and mortgages, commission tends to work well.

Yet it is critical we get the model right.

There is a reason why tentative supporters of commission caveat their argument by stressing the need for appropriate safeguards.

Natalie Holt is editor of Money Marketing. Follow her on Twitter: @Natalie_Holt_MM

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Comments

There are 9 comments at the moment, we would love to hear your opinion too.

  1. Pre RDR I pointed out to all who would listen |(not the regulator, clearly) that access to financial advice would wither. I was not the only one – Martin Lewis, Janet Walford, Malcolm Kerr, Garry Heath, Derek Bradley, Simon Mansell and many others – all pointed out the disastrous consequences which would end up disenfranchising millions of consumers.

    As with most political decisions the die was cast long before the sham consultations were put into place. Politicians, regulators looking to clamber up another rung, journalists waving the consumer flag (purportedly) and many financial institutions such as AIFA and the ABI all welcomed the RDR.

    Their place in the hall of shame is assured.

    At one APFA Council meeting I told them that they should apologise to every adviser in the country for their display of Chamberlain-like statesmanship and was shot down by every other council member. There is nothing like a good shaming to get their backs up!

    Those who try to perch on the top branches and shout about a profession should remember that the high net worth were once low net worth and, without financial advice and the purchasing or products at an early age, many would never have reached their HNW status.

  2. And those who are exercising their pension freedoms only have a pension because someone recommended it and not unreasonably expected be paid. Commission needed a few tweaks and in truth that is what adviser charging is – I wonder how many clients actually pay their adviser by way of a separate cheque?

  3. As for the banks, they will be back selling some people unsuitable products – of course they will. But, alongside that, they will also be selling a lot more people products that actually serve them well.
    This, then, is the dilemma that legislators have. If the price of 9 people being insured, saving money, funding pensions etc, is 1 person being sold an unsuitable product, is that worth accepting?

    Given that the 1 person would, on discovering their banks chicanery, would have access to redress via the FOS, I would have to say, yes it is worth it – even though it is painful to contemplate the grasping fingers of avaricious banks which will already be twitching with excitement

  4. @ Ivor Harper

    The secret is a regulator able to intercede quickly when there is an indication of bad advice. With the Gabriel returns and Touchstone there is no excuse for lack of info.

  5. We cannot escape the fact that consumers need to know what they are getting, what it costs and how they pay for it. Hiding commission charges inside a product so that it appears that the advice is free is a backward step and misleading. If there is to be a two tier system then consumer education must be improved, otherwise the waters will be muddied and the sharks swim undetected.

    • Personally I and all my clients, advisers and any one I have been working with have never thought that advice was free! This fallacy was perpetrated by the si called consumer based associations including those that hid behind the front of the Industry representative FCA! Where did all the millions go if industry contributions that would have been better spent to provide paid for advice? Instead we had to sit and watch gratuitous spending on a scale to disgust even the most hardened pessimist.
      The MAS has got to be the worst ever case of ‘free advice’.an utter and total waste of money and all to the detriment of the client!!!!

    • Geoff, nobody appears to be suggesting that it should not be fully disclosed. I mean in reality to the consumer, what is the difference between a fully diclosed commission that doesn’t vary from provider to provider and a provider enabled adviser charge?

      In reality the name is the only real difference, the client pays the same, they get the same, the adviser gets paid the same, the only difference comes about in how the charge is structured and that a provider can deduct the charge for that advice up front over a long period of time to make such things as regular premiums back to be advisable.

      I really fail to see any problem with it, as long as it’s disclosed, how its charged is explained and it is set at a flat rate so there is no variation across providers.

  6. At Geoff Sharpe – Agreed however you only need listen to the news today to find OffCom (it think it was them) has just told the broadband providers to make things easier and simpler and give the consumer on bottle line figure. Reasoning behind it is that is whether understand and that is what they want and need to know. The want to get away from the individual pricing as it is confusing. BB price is this but only get this if you have TV/phone with it. Phone package is so much and the line rental is £x pm.
    There is and never was anything wrong with commission as a payment method. I will never stop saying this because i hear the phrase commission bias used a rationale for removing it. There never was biased to be found and when you see how closely the FSA looked for it you will not see it. To suit their purpose, they commissioned a 2nd piece of research asking of there was a perception that commission bias could exist. This came back in the positive and it always would. It is possible for a perception of anything to exist. So that is what they ran with.
    It has its place in the savings/investment/pension world and I simply do not believe clients didn’t actually know how much was being paid. Initially it was in the pre sales quote, it was also in the suitability letter and finally it was the post sales illustrations which was sent direct from the providers. There was no getting away from it.
    I would ask MM to submit a FoI request to the FCA to find out what percentage of business is done via AC being provider facilitated and the amount of business being placed with NIL AC being applied to the plan(s). The FCA should have access to that simple piece of information after 3 years of RDR, Whilst it is only a gut feeling, I am sure the provider facilitated AC will be in the huge majority because that is how the vast majority of the population prefer to pay, like it or not.
    However, if for no other reason at all, it should be brought back in order to return a payment choice to those who wish to use our services.
    In all the crap that stems from the FCA, and the vast majority of advisers on here (me included in the past) everyone talks about what what we want to do, what we aim to do, what have decided to and so on. What about being novel and innovative and actually allow the clients a choice of what they want.
    The fact that FAMR is happening at all is proof that the FCA have made a catastrophic error with the removal of commission as one of the things to do with RDR (even though they won’t admit it). If ti worked the way they intended (or hoped is more closely related to the truth) we would not have the mess we find ourselves with.

  7. Cast your mind back to advice given relating to personal pensions.
    Put your money in your safe occupational scheme, top up your contribution as it is safer than buying a crooked personal pension from a provider!!!!
    Where is the compensation for this advice from the government??

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