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The PFS View

A few PFS members have become quite heated as a result of views we have expressed on the publication of the ABI paper, Financial Advice: How Should We Pay For It? I suspect their reaction is motivated more by fear of loss of income than the desire to come up with an equitable solution which improves confidence in the financial advice sector.

I think it is important to draw attention to comments in the ABI paper which appear not always to have been noticed. On page 15, it says: “Indemnity commission is an important source of finance to (often small) IFA businesses. The ABI is very aware of the implications for those businesses of the proposal to abolish indemnity commission. A reduction in the UK’s overall capacity to deliver independent advice would be bad for product providers and, more important, bad for consumers, who would face reduced access and poorer competition and choice. With this risk in mind, the ABI would work closely with advisers, the FSA and others to ensure that any change sustains capacity, provides stable finance for quality businesses, drives up quality and minimises the possible loss of ongoing service to customers.”

Further on, the ABI says: “Sustainable funding for a stable advice market is key to tackling the national savings gap.”

So we should suspend our knee-jerk reactions, I suggest, and engage in the debate. What of the other recommendations in the report? Would anyone disagree that commission structures should be reviewed and simplified? Surely it makes sense to have the same commission structure for equivalent products which serve the same purpose for consumers? An annual commission statement allowing the customer to check they have received the services they were led to expect and compare costs with performance surely opens up the possibility of a further discussion between adviser and client to establish stronger client relationships? The right of the customer to ask the provider to move commission payments for ongoing service to another adviser if dissatisfied with the service received is only right and proper.

The ABI says the commission structure for any product should incentivise advisers to give appropriate advice and then review product suitability and performance over time on behalf of the customer. This is only what should be happening already but the fact that commission structures do not always appear to incentivise those activities in the right way needs to be addressed if our reputation is to improve.

To those who have complained that the PFS should keep its own counsel until members have had an opportunity to instruct it on what to do, I would suggest they allow the PFS to exercise its professional judgement on their behalf. We have been engaged in the discussion about commission for many years and, at long last, the industry appears to be signing up to a constructive debate to reform the commission system in a way which is fair both to customers and advisers.

To have such a discussion is not to suggest that all clients should be moved to a fee basis – clearly, many do not want that – but we should not artificially limit the debate by ruling out any reasonable options.

I would encourage Money Marketing readers to send their views to the editor.

John Ellis is public affairs director of the Personal Finance Society


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