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Mind the gap in the clamour over commission

Commission is not the root of all evil. Nor is it a necessary evil but simply necessary if the retail savings market is to function.

This is a difficult case to argue because of fierce hostility from the national newspapers, one of which, just this week, portrayed advisers as commission-hungry sharks on the cover of its money section.

The head of the retail review Ron Sandler, answering questions from IFAs in this week&#39s Money Marketing, argues that consumers do not know that ultimately they pay the commission not the provider.

Clearly, as one of the fundamental market mechanisms, commission should be scrutinised.

But one piece of research in particular, the ABI-commissioned report by Oliver, Wyman & Co, carries warnings about sweeping interventions. It suggests that current low levels of pensions take-up could be increased to what might be called “natural levels” by allowing stakeholder&#39s charge cap to increase to 1.5 per cent.

It also warns that banning up-front commission could lead to about 25 per cent of IFAs leaving the market with many others forced to multi-tie and a £2bn increase in the savings gap. A complete commission ban could push 50 per cent of IFAs out of the market and bring a £4bn increase in the savings gap.

Commission is arguably too high for certain products, but we would urge targeted action if this is proved to be the case rather than prohibition.

If change must come, it must be over an extended period of time or the industry, the Government and the public will all lose out.

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