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Review of non-advised commission ‘inevitable’

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Firms with execution-only arms say it was “inevitable” the FCA would set its sights on non-advised sales commisison following the RDR ban on advised sales. 

Minutes from the FCA’s June board meeting show the board discussed a number of “key issues” in how the retail investment market is developing post RDR, including “the need for a clear distinction between advised and non-advised sales, particularly those non-advised models that could be misconstrued by customers as advice, such as decision trees”.

The board also talked about “whether the continuation of commission payments for non-advised retail investment sales created potential risks”.

Hargreaves Lansdown head of pensions research Tom McPhail says: “It was only a matter of time before the FCA got around to looking at this question. To a degree, the level of distribution costs, whether in the form of fee or commission, are secondary to making sure the customer gets the right terms and the right level of income.

“In principle I would be quite relaxed about an intermediary getting 5 per cent commission if it meant the customer got a higher level of income, than from an intermediary taking a lower fee but with the result the customer got a lower level of income. Given where the FCA has gone on adviser commission and platform charges, it was inevitable that sooner or later the regulator would raise commission on non-advised sales as an issue.”

Annuity Direct chief executive Alan Higham says: “The FCA would need to tread very carefully before banning non-advised commission as a method of payment for an intermediary. This method is popular with customers, and it is much more tax efficient and easier to administrate.

“There is nothing wrong with commission payment as a mechanism, what is wrong is the disclosure by some firms, and those non-advised firms that give so much guidance the customer cannot tell the difference between what is advised and what is non-advised.”

The FCA says it will carry out a post-RDR implementation review in 2014 and return to the board on this issue early next year. 


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