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SEI calls for commission to spared under RDR

The FSA should impose limits on commission payments rather than outlawing them completely under the RDR, according to SEI Investments.

In its response to the RDR, managing director Joseph Ujobai says the SEI supports a separation of the product and advisory fees but argues an outright ban on commission is not the best way to stamp out bias.

He says: “We suggest that what may be needed are limits on the commission payments rather than outlawing them per se. Or alternatively, consideration should be given to ways in which consumers may best be able to decide payment structure.”

Ujobai adds: “We believe that the separation and transparency of adviser and product fee and hence removal or undue influence of product provider should not necessarily be focused on pricing schedules but should instead be focused on other evidence and practice of a firm’s delivery of unbiased advice.

“Whilst we agree to the removal of product/trail commission fees, we believe they should be removed only where they unduly influence the adviser from acting or offering advice in their client’s best interest. This is because a complete ban of such fees may be counter-productive given some of the benefits to the consumer in paying trail commission fees to their adviser.”

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Comments

There are 8 comments at the moment, we would love to hear your opinion too.

  1. Mr Ujobai, no doubt you will be looking in to see the readers’ response to your comments. If you do pop in, can you explain ‘the benefits to the consumer in paying trail commission fees to their adviser’?

  2. Dear Mr Munro, thank you for your question, I am happy to explain. The benefits to the consumer in paying trail commission fees are that:

    1. Such pricing structure may allow for a distribution of adviser costs across large and small investors, in that they allow IFAs to offset the smaller investor accounts with large investor accounts by using an asset based charge rather than a flat adviser fee.

    2. Up front flat adviser fees may not be suitable and therefore deter smaller investors from making investment.

    3. Trail commission fees may have certain tax (VAT) savings for the IFA, the benefits of which may be passed onto the consumer.

    4. They may help reduce administrative and accounting burden on advisers, which may in turn benefit the consumer.

    We are looking forward to more open discussion around the delivery of advice in the UK market.

  3. Please don’t take this personally but your defence of commission is exactly what I’d expect from a representative of a company which has always placed an emphasis on how much the IFA gets out of placing business with it, rather than the advantage to the clients.

    I’ve been an IFA long enough to remember huge Scot Eq allocation rates which we clawed back if the client retired a moment too soon. Never mind the poor equity performance!

    I made the classic mistake of listening to a Scot Eq broker consultant some years ago and I’m embarrassed every time I go to see those clients. I can’t change the investments as they were written in trust for IHT purposes and the other internal fund choices are equally unappealing.

    No-one offering a decent service, or in the providers’ case, decent products has anything to fear from the RDR.

  4. Dear Mr Munro, thank you for your question, I am happy to explain. The benefits to the consumer in paying trail commission fees are that:

    1. Such pricing structure may allow for a distribution of adviser costs across large and small investors, in that they allow IFAs to offset the smaller investor accounts with large investor accounts by using an asset based charge rather than a flat adviser fee.

    2. Up front flat adviser fees may not be suitable and therefore deter smaller investors from making investment.

    3. Trail commission fees may have certain tax (VAT) savings for the IFA, the benefits of which may be passed onto the consumer.

    4. They may help reduce administrative and accounting burden on advisers, which may in turn benefit the consumer.

    We are looking forward to more open discussion around the delivery of advice in the UK market.

  5. Dear Anonymous, it appears there is some confusion. SEI Investments has no linkage to Scottish Equitable.

  6. Just because the plans are written/assigend to a trust does not mean that the bonds cannot either make regular withdrawels or be encashed (subject to tax charge), held on cash in the short term (for which a trustees cash account might be needed) and/or reinvested straight away in something you and your client would be happier with.
    That’s not to say I’ve any probably with AEGON Scot Eq anymore or less than other insurance companies.
    On the commission / charges front, i can’t see much of what Mr Ujobai is arguing about as RDR does allow deduction of charges through the contracts, both as a % and fixed amount but in a transparent manner with the amount being paid to the adviser being deducted exactly an immediately from the contract with NO factoring. The only thing RDR will remove is built in commission, that then has to be waived and which then increases the nominal sum for instance from £25,000 to £26,125 but with a “cash in charge”. We’ve just arranged an SLI contract on nil initial and I’d prefer the more transparent all plans structured on nil commission.

  7. Dear Anonymous, it appears there is some confusion. SEI Investments has no linkage to Scottish Equitable.

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