It is mildly heartening to read that Clive Briault is, albeit in the FSA’s familiarly oblique and somewhat roundabout way, admitting that commission in itself is not evil but rather it is the abuse of the commission system that is the cause of so much of the industry’s bad reputation. Hey, well done, Clive. Cracking piece of insight. We never realised until you spelt it out for us.
Commission bias and salesmen taking as much commission as they can get away with, irrespective of the quality or value of the work undertaken for the client, have been endemic black marks on our industry since time immemorial. Most of us at the better end of the advisory market are taking steps to address these issues and not always easy ones.
The best solution to the problem of commission abuse is absolutely clear disclosure of commission (not a bit of small print on page five of an already cluttered standard illustration but a separate document) along with a signed agreement from the client in respect of each and every product sale that:1: They have been given the opportunity to examine alternative methods of remunerating their adviser (for example, fees or indemnity commission or non-indemnity commission or discounted commission) and that, if they have chosen the commission route, this is,2: On the basis of a proper explanation of the fact that commission levels are not carved in stone and that they can be adjusted, usually to the benefit of the investor, or paid/received in different ways. And that,3: If no trail commission is to be taken (and when do the banks and building societies ever bother with that?), this means that nothing in the way of any ongoing service or advice or reviews will be provided for the simple reason that no ongoing remuneration will be generated to cover it.
First, this would deal a severe blow to commission-biased product selection because it would force extra commission to be rebated to enhance the terms of the product. Second, I suggest it would go a long way towards achieving the objectives of the FSA’s cack-handed commission menu (in so far as the FSA has ever disclosed or explained those objectives to the industry at large).
But, as we know, if there is an easy way of doing something and a hard way of doing something, you can bet your bottom dollar that the FSA will choose the latter. I wonder if the FSA ever feels just a little guilty about all these accusations of doing pretty well everything the hard way primarily to justify its existence? Maybe the people at Canary Wharf just could not see a straightforward action plan if it bit them on the leg.
WDS IFAs, BRISTOL