The head of the Treasury's financial services review Ron Sandler has dropped a bombshell on IFAs by questioning their relationship with clients because of commission.
The move, which comes as the FSA launches its own probe into commission, fuels speculation that payments may be capped through a new maximum commission agreement or Catmarking of advice.
Sandler has published a consultation paper on the review this week in which he raises the idea of a cap on commission. He says consumers may be damaged by their lack of understanding of the relationship between IFAs and providers. The paper, A Review of Medium and Long-term Retail Savings, asks the question: “Is there a case for regulatory intervention in the setting of fees and commission levels?”
Sandler expresses particular concern about front-end-loaded commission, saying consumers may be misled.
The debate over a commission cap has long been thought dead by most following the Office of Fair Trading ruling in 1988 that the Lautro Maximum Commission Agreement was “significantly anti-competitive.”
OFT spokesman Mark Kram says: “A cap on commission would still be looked at as a possible price-fixing agreement. I cannot see any difference from the view that was taken in 1988 to that which exists today. I do not think anything has changed.”
Sandler told Money Marketing: “The IFA is incentivised by product providers in certain ways and these incentives are not necessarily complementary with the interests of the consumer.”
Clerical Medical pensions strategy manager Nigel Stammers says: “As a provider we would like to see commission stable and lower. But as an IFA distributor we would want to make sure IFAs make a worthwhile living for their work.”
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