I was surprised to say the least at the comments by Donna Bradshaw in last week's Money Marketing about the LIA's interpretation of the Sandler report.
It should hardly need pointing out that the LIA analyses Government/ regulatory statements very closely and any comment we make, whether immediately after publication or later, is based on sound assessment. I do not appreciate a rush to judgement about what the LIA might or might not have done without at least the courtesy of discussing the matter with us.
The key to the problem posed by the Sandler comments on remuneration is conceded by Donna. She talks about commission offset and then says: “Under Sandler, as it stands, this would be lost as the report proposes that the provider offers the product to the adviser at a wholesale price, with the adviser then offering the product to the client at a retail price.”
The net effect might well, in theory, look similar to the current arrangements but Sandler also says there would be a crucial difference. The consumer would have explicitly agreed the payment made to the adviser at an early stage in the process. We have had commission disclosure for some years. No LIA member is reluctant to disclose remuneration to a client. Enhancing transparency would not be a problem. But Sandler is asking the consumer to agree explicitly to a “mark-up”.That adds an entirely new dimension. It puts all transactions on a fee basis.
Obviously, for fee-charging IFAs, there should not be a problem. The problem does arise where consumers are not interested in the cost of advice and are quite happy with the arrangement where this amount is costed into the product without any further discussion.
We do not, of course, know what the FSA will eventually say about all this. But I would predict that if the eventual policy adopted is similar to Sandler's suggestion, then there will be some considerable difficulty for IFAs who are working on a commission-only basis.
We need to think very carefully about the wishes of clients. As Donna well knows, a good many of them are very happy with the current arrangement. Perhaps I might sum up the comments that we have made to the FSA and others about this issue with the very simple statement: “The punters won't like it.”
LIA head of public affairs,