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One in three advisers back FCA commission U-turn

More than a third of advisers would support the return of commission as a revenue source in the advice market, research suggests.

A poll of 429 advisers conducted by CoreData Research found that 34 per cent would welcome the return of commission.

A further 13 per cent said they were uncertain, while 53 per cent would not like to see commission come back.

Similarly, 53 per cent of advisers said they would change their fee structure to include commission if allowed.

Almost half of respondents believed the fact the return of commission in some form was under consideration shows the FCA has failed in its RDR objectives.

Quizzed on what kinds of products would be most suitable for a commission element, the most popular option was pensions, chosen by 34 per cent of advisers, followed by Oeics and Isas, nominated by 24 per cent and 23 per cent, respectively.

Some 15 per cent of advisers responded that all pensions and investments products should be able to charge commission.

The findings come after Money Marketing revealed an expert panel would consider recommending a return for commission as part of the Financial Advice Market Review.

The FAMR, jointly led by the Treasury and the FCA, is assessing barriers to the provision of financial advice, particularly with a view to tackling the advice gap for people with smaller pots to invest.

As part of that process, the Government appointed an independent panel to develop reform proposals, and Money Marketing revealed in January the panel was discussing the development of a new charging structure similar to commission on simple accumulation products.

Some 34 per cent of those surveyed by CoreData said commission would help advisers re-engage with mass-market investors.

CoreData head of international Craig Phillips says: “The biggest unintended consequence of the RDR initiative was to extend the advice gap, which resulted in many professional advisers seeing no merit in offering their services to mass market investors.

“The potential return of commission has clearly split the advice market, with a considerable number of advisers willing to take advantage of this opportunity while recognising the risks which commission payments bring with them.”

The survey also found 49 per cent of advisers felt the potential re-introduction of commission was being considered as part of a bid to bring banks and building societies back into the advice market.

Similarly, 70 per cent said banks would be the biggest benefactors if commission was re introduced to the market, while 51 per cent said such a reform would provide mass-market advisers with the biggest boon.

However, advisers were less optimistic on their own prospects, with just 32 per cent saying the impact on their sector would be positive.

Phillips says: “Although many advisers who have struggled to adapt in a post-RDR world consider this change to be a potential lifeline to their business, there is a clear feeling the banks will be the big winners if this comes to fruition.”

Adviser views

Dennis Hall, managing director, Yellowtail Financial Planning

It’s not surprising the market is so divided. There are people who have always been anti-commission and were heading that way long before the regulator got involved.

There are others what would like fees but are struggling with legacy issues, and those dealing in lots of protection and struggling to consider fees for other work.

That means a blanket approach saying you can’t do this or that is never going to gain acceptance.

Matthew Harris, director, Dalbeath Financial Planning

What you have here is a situation where IFAs secretly would probably quite like commission back. Many probably feel a bit nostalgic for it, but they know in their heads that commission was basically to blame for most of the misselling scandals of the past.

It’s like a greed versus virtue situation, and some might even be afraid of what they may be tempted to recommend to clients themselves.

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Comments

There are 11 comments at the moment, we would love to hear your opinion too.

  1. So it would appear that the thrust of these proposals are that the way to close the alleged ‘advice gap’ is to permit commission again which in turn allows advisers to hike their advice costs being charged to ‘mass market’ consumers who unwittingly pay for these higher fees through increased product charges whilst also reintroducing the risk of provider bias and a question mark on where the advisers loyalties lie (is he selling a product for the provider or acting on behalf of the client).

    We’ve also seen providers abolish commission which was being used by some to ‘service’ their clients – all things being done ‘in the spirit of RDR’ – leaving the client with a higher overall cost.

    We’ve had the cost of moving from bundled to semi and now unbundled funds.

    Some firms have the issue of sunset.

    And now, after all that, there’s talk of going full circle.

    Does no one get that the ultimate loser, long term, in the constant raft of legislation change is the client?

    Costs generally don’t do down, transparency becomes ever more complicate, the the need for advice (and it’s associated cost) gets higher.

  2. Wow – only 34% would welcome the return of commission. I don’t think there were many polls pre-RDR showing 66% welcoming an end to commission. Regardless of what’s best for particular customers or business lines I think this represents a significant shift in opinion.

  3. One of the main reasons this whole debate has become so heated is that it conjures up, for regular contribution plans, memories of initial units and early exit charges, whereas those aren’t what are being proposed at all. The indemnified payment of an initial advice charge, recoverable by reduced allocation for the first 2 years, could be a clear and workable means of getting round the requirement for advisers to charge investors of modest means an initial fee that they either don’t want or cannot afford to pay. If that encourages such people to engage with the need to set aside money for their future, surely it could be a force for good.

  4. The simple answer is to only allow it on true transactional business eg protection, annuities, variable annuities etc

  5. Like other areas of society we find ourselves constantly being told what to do, how to do it and that, regardless of the consequences, it’s good for us.

    With so many protections – FOS, FSCS, consumer journalists, whistle-blowers – having rafts of rules about what can and what can’t be done is pretty pointless and over the top.

    Good advice and/or acceptable distribution methods are needed and these are neither synonymous or antonymous in respect of commission or any other charging structure.

    Is it only me that is pig sick of people (often those who have never even advised a hamster) telling me what’s best for me and my clients?

  6. Now I’m not a genius, I’m only a lowly paraplanner – but when I read a headline that says One in three advisers, my initial thought is that means 2 in 3 don’t support the U turn. so a non story –

  7. So – we still have about 33% of dinosaurs still in the industry/profession/job. Thank goodness there are over 60% who have got with the programme.

    What’s the betting that the 33% are the ones bleating about the so-called ‘advice gap’ and the 66% are the ones with a decent business.

  8. I keep saying this, but if you have money to save or invest, why do you need commission?
    Regular savings you can already spread the cost over twelve months without it being a credit arrangement. This is more about consumers unwillingness to pay and advisers trying to hide their costs. Which ever way you look at it a return to commission will result in poor outcomes.

  9. Whether I charge a fee or receive commission on a small case it is unlikely to cover the time involved in processing the business compliantly, to charge the right amount would be disproportionate to the transaction and self defeating.
    So the ” advice gap” will continue, but it has always existed. Some consumers value advice, some do not. What has happened is that those who thought it was free no longer wish to pay for it. The FCA and Government cannot change human nature.

  10. It was Sir Callum McCarthy’s infamous ‘Gleneagles speech in September 2006’ which laid the groundwork for the overhaul of the UK financial services retail distribution business model, something now referred to as the ‘RDR’.

    Nearly ten years on is a great time to reflect on the six pillars of Callum McCarthy’s RDR wisdom:

    1. • an industry that engages with consumers in a way that delivers more clarity for them on products and services;

    2. • a market which allows more consumers to have their needs and wants addressed;

    3. • remuneration arrangements that allow competitive forces to work in favour of consumers;

    4. • standards of professionalism that inspire consumer confidence and build trust;

    5. • an industry where firms are sufficiently viable to deliver on their longer-term commitments and where they treat their customers fairly;

    6. • a regulatory framework that can support delivery of all of these aspirations and which does not inhibit future innovation where this benefits consumers.

    In laying out his vision, Sir Callum reckoned the industry would require a “collective shift away from product and provider bias, toward an incentivised and regulated distribution system”.

    Please discuss!!!!

  11. Should the headline not read “2 out of 3 Advisers do not back a return to commission”

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