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Research claims to show bond commission bias…

IFAs have shown significant evidence of commission bias when choosing between providers for with-profits and distribution bonds, according to an FSA report although it admits the markets is not riddled with bias.

The research, by Charles River Associates in October last year, is published as part of consultation paper 121. It claims to reveal some evidence of product bias in the IFA market, with some advi-sers alleged to be inappropriately choosing unit-linked bonds over Isas.

The report says that where there had been cases of bias, it had been detrimental to the consumer, with some products being unsuitable in terms of taxation, access and charges. CRA estimates the cost of commission bias to the consumer to be over £140m a year but it stresses this is likely to be a conservative estimate.

The report says bias is much worse in the IFA sector than among tied agents but concludes that overall it would not be fair to say the advice market is riddled with bias.

On regular-premium products, CRA found that there was no detectable commission bias. It suggests this may be due, in the case of pensions, to the PIA&#39s regulatory update 64 in March 1999, which said that personal pension recommendations must not materially disadvantage investors in terms of charges ahead of stakeholder.

The FSA polarisation paper says: “From the CRA research, there is evidence that commission does create both product and provider bias in some cases. There is also evidence that, in some cases, this leads to consumer detriment.

“Any detriment to consumers may, however, be mitigated by two possible factors – there may be rebating of commission, or in the long run, commission may work out cheaper for the consumer than paying an up-front fee.”

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