I see Ron Sandler has been joined by the Eurocrats at the Brussels Inquisition. Both seem ready to run a sword through any adviser paid by commission. However, the potential impact on the consumer would seem to have been overlooked.
I am a self-employed IFA with a client bank of around 250 and growing. I work on a commission basis only. Around 40 of my clients are in what I would call the high-net-worth bracket. Let us call them the Mr and Mrs Topnotches.
Over the years, the occasional Topnotch has raised the issue of fees. I explain that I do not work on that basis but I offer to provide them with my analysis and report so they can assess the quality of my advice. If they are not happy with my work, I explain I will be happy to refer them to a colleague who will work on a fee basis.
None has yet taken up my offer after seeing the quality of my work. All are happy for me to get commission and none has questioned the impartiality of my advice or my integrity.
I am also happy to give advice to Mr and Mrs Average-folk. Now, the Averagefolk tend to be rather mistrusting of financial advisers because they read the Sun, the Mirror, and the posher ones read the Mail.
Fortunately, the Averagefolk I meet will probably have already been sold on the idea of meeting with me by a colleague from our will-writing or legal services department so they will be receptive. After gaining their trust and discussing their needs, I may conduct some business with them. I may rebroke the expensive life cover that the building society sold them when they took out a mortgage five years ago, saving them a few pounds each month. I might set up a small savings plan or pension. It is usually small case business but there are a lot more Averagefolk than there are Topnotches so I still earn a good living.
To Mr and Mrs Averagefolk, I am probably less of an adviser and more of a salesman as, in most cases, they need to be educated and motivated to buy financial products.
The issue of my charging a fee to these clients has never been raised. Why? Because they would not be able to afford it. They are happy for me to be remunerated by commission So, there they are – the Topnotches, who could afford to pay fees but choose not to, and the Averagefolk, who cannot afford to pay fees. Not exactly a stunning case for the abolition of commission, is it?
But what would become of them if Mr Sandler and the Eurocrats just go ahead and ban commission payments?
Well, most of the Topnotches would probably pay up but I think I might see an increase in clients who decide they do not really need a full annual review.
The Averagefolk would have few options. Some might see a “salaried” rep and buy a rather expensive policy. Some might trust their bank. One or two might buy on the internet.
But the vast majority of the Averagefolk would do nothing. They would not buy any financial products. Well, that's no problem, is it? Not until people start to retire with no pension income or they get old and sick with no private health or long-term care cover or they die without life cover.
Legacies Asset Management,