I have been reading the ongoing debate about fees and commission which has been reignited by Peter Hargreaves. Getting hung up on whether one is better than the other clouds the more fundamental issue of offering fair value to the customer.
Offering fair value to the customer is not dependent on how we are paid but on the relationship between the amount we are paid and the amount of work we carry out for the customer.
A common and fair criticism is that many products offer maximum commission that is disproportionate to the work done by the adviser. Such products do not represent a fair deal for customers.
It is encouraging to note that there are a number of financial advisers who are taking on the FSA’s treating customers fairly message and, when recommending such products, are endeavouring to rebate commission to improve the deal for the customer. A good example is the arrangement of investment bonds on commission terms similar to unit trusts, that is, 3 per cent initial instead of 7.5 per cent.
What is less encouraging is the seeming reluctance of product providers to integrate the treating customers fairly message into product design. Instead, they are still offering high commission deals and the opportunity for certain firms to take commission wildly disproportionate to the work they do for their customers.
I think the whole-of-market advice sector is becoming polarised in its own right, with IFAs serious about treating customers fairly at one end and the maximum commission/maximum turnover firms at the other.
If such unsustainable business practices aiming at maximum turnover are driven by the management’s interpretation of fiduciary duty, they need to think through more carefully the meaning of fiduciary duty.
My concern is how these differences in the whole-of-market advice sector can be effectively communicated to the public, so when they need financial advice they are able to identify IFAs whose advice will be based on fair treatment as opposed to a maximum commission sales process.
Director, Towers of Taunton (Financial Services),