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Tory MEP: Labour blame for EU-wide commission ban failure

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MEP and Economic and Monetary Affairs committee member Kay Swinburne says the UK “spectacularly failed” in its negotiations for a Europe-wide ban on commission, blaming the Labour party for a lack of support.

Speaking at a CityUK fringe event on financial services at the Conservative conference in Birmingham yesterday, Swinburne pointed out that foreign financial advisers working in the UK would still be able to receive commission in certain circumstances under Mifid II rules, despite the RDR.

Last month, the European Parliament backed proposals to allow member states to keep paying commission to financial advisers. There was concern the FSA would have to gain an opt-out to keep the RDR commission ban but the new rules allow the UK and other member states to go further than the EU rules.

If an adviser firm sets up a branch in the UK, under either Mifid or the Insurance Mediation Directive, the FSA’s conduct of business rules will still apply, including the RDR commission ban and rules on independence.

However,, if a firm passports into the UK without having a UK branch they are only subject to the rules set by their home state’s regime.

Mifid and the IMD passporting rules do not include all investment products. For example, personal pensions are not in scope so firms passporting into the UK who are seeking to provide pension advice will require a top-up permission, and therefore be subject to FSA rules.

Swinburne said: “Even though we have had the RDR to look at this type of issue for the UK it does not extend to non-British financial advisers who are operating in the UK so we need to protect our investors. Disclosure is only one step in that direction.

“We have just tried under Mifid II to get amendments through that would ban inducements. Inducements in a British context sounds a really bad thing as it sounds as though someone is being paid to act not in the interests of the client.

“We have spectacularly failed to get everybody across the political spectrum to accept that inducements should not be paid to financial intermediaries for your business. I can tell you that the British Labour party did not support the banning of inducements.”

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Comments

There are 13 comments at the moment, we would love to hear your opinion too.

  1. Does she get paid for that useless information?

  2. She has spectacularly failed just by existing

  3. @Peter 9.59. Unfortunately she gets paid a shed load of money but her point is valid. RDR will exclude Passporting advisers despite, Hector Sants protestations to the contrary. The RDR is going to create a very unlevel playing field with UK advisers being disadvantaged. The FSA were made aware of this but in their stubbornness refused to wait until MiFID 2 rules were finalised before pressing ahead. This was despite Sants admission that they didnt know what the final rules were going to look like.The incompetence of the FSA board that agreed this defies belief but hey they dont care as its only money and its not theirs. Billions of pounds spent on something that the indusrty didnt want, advisers didnt want (on the whole) and clients dont want. As the RDR only got the go ahead by a 3 to 2 vote, the 3 people involved are responsible for ruining the advice indsutry and costing thousands of jobs so far, so many disasters coming in the form of unintended consequenses and not 1 one of those people are still at the FSA to see it through. If this had been a financial institution that had caused this much detriment to the market the punishment would have been HUGE and rightly so. They make most decent people in the industry want to puke.

  4. My dad told me once, if you don’t say anything people may think you are stupid however if you open your mouth and start to speak that will, no doubt, confirm it.

  5. ken170647 youtube 9th October 2012 at 10:45 am

    Instead of referring to this as a commission ban let’s start addressing it in the proper way. IFAs have to offer a fee based payment method for customers. They have to offer a fee-based option! But customers can also choose to receive rebates of commission AND offers of extra allocations from providers. So the RDR commission ban is about restricting customer choice – nothing else. Instead of writing to MPs and so on, why not write to all those finance journalists to explain the real situation to them. They have no understanding of what’s going on. Look at this week’s Sunday Times for example, the rubbish that’s written about RDR in the Money section.

  6. Mr Woolley – you’ve proved your Dad right !

  7. “Inducements”!! How very 90’s.

  8. Oh for goodness sake! Adviser fee or commission, does it matter? The only exception I can find is with bonds where the adviser remuneration counts as a withdrawal – an example of failing to have joined up thinking by all the government agencies involved.. Otherwise do people think commission comes from? A magic money tree?

    “Enhanced Allocation” Ma Derrière.The option of selecting commission and having a rebate should not work out any different to a fee in a CLEAN contract.

    Lets face it, the main difference with commisson is that some ‘dinosaurs’ and bank-assurers fiind it easier to mask high charges.

  9. @Steptoe’s Ghost, extra allocations are not advice charges. They are either paid for by a rebate of commission, or they are paid for by the provider from their marketing budget. To deprive customers of this option is an attack on their rights! What good is a clean contract if the customer is denied a genuine bonus? There’s so much ignorance about this commission thing it’s ridiculous. It’s because of this ignorance this crazy scheme has got so far!

  10. Try this:
    Get a £100000 investment bond quote for a client under old terms say 3% commission and .5% trail over 10 years.
    Then:
    Get a £100000 investment bond quote for a client under new terms say £3000 fee and .5% annual service charge over 10 years.
    Then you will see how much the client is disadvantaged by. Where does all this missing money go, well why do you think the Insurance companies didn’t fight too hard against RDR?

  11. @Anon “extra allocations are not advice charges.They are either paid for by a rebate of commission, or they are paid for by the provider from their marketing budget.”
    Extra allocations are an accounting fudge.
    Q. (rhetorical) Where do you think the marketing budget comes from?
    A. charges from customers.
    The only way for one client to benefit from additional allocation in your version must necessarily be at the expense of another. Other than reasonable dilution levies this is not acceptable and harks back to the Ponzi-like schemes in past decades that inflated returns when the new investments increased;but only initially and not for the benefit of those who came in later.

    @David – I have seen enough faults in illustrations to doubt their integrity, please explain why the exit chosen for the costs should be logically any different?

  12. ken170647 youtube 10th October 2012 at 9:14 am

    @Harold’s ghost: “Extra allocations” means less spent on advertising or lower company profits. It’s nothing to do with customers. “Commission” can also include money that would otherwise be spent on advertising or lower company profits.

  13. For crying out loud, give it a rest, these arguements are purely academic, we will see commission banned for investment business including pensions after 2012. Job Done.

    If clients want competent, professional and suitable advice on purchasing a pension plan, life assurance, ISA, investments, Income Protection etc, then need to understand that THEY always pay for the advisers services and the protection under FSA / FOS and FSCS rules taking advice gives them.

    If an adviser screws up and misdirects their focus from providing the right and suitable service and products, there is no where to hide.

    Transparency in our costs is the biggest issues, because all consumers see is the commission or fee being received, no mention of how much it costs the firm or adviser to provide that service;

    Maybe a better way would be to provide alongside the menu / client agreement detailing costs of advice services is a breakdown of the advising firms costs incurred in providing the services.

    I am working on that one so if someone says, why is the charge so high ? I can truthfully answer that it costs me X pounds to operate, pay staff wages, take a salary myself, pay the electric bills, regulation fees and PI insurance as well as insurance cover for the business etc etc etc and come up with a net figure. which would represent your profit margin to continue in business providing ongoing services.

    Clients understanding would be greatly enhanced and one has to consider whether a 3% initial charge on investing £100,000 in a bond is really justified.

    if there is a specific costs analysis then and only then will clients be willing to pay for advice.

    Difficult times ahead for us all, we need to stop whingeing and show each other how to cope with the changes.

    Additional allocation still costs the client in higher AMCs generally.

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