I write in response to Ivor Harper and his observations about Lorna Bourke's comments on commission.
Perhaps with the marriage of Scottish Widows and Tesco, Tesco will, at long last, produce a key features document for all its goods, showing its profit margins. The one thing Mr Harper did not mention was the fact that the commission we get paid, or the fees for that matter, are our gross margin. Around 10 to 15 per cent of that might actually find its way out of the business and into the adviser's pocket.
I have recently written to the provider of my BMW car and asked them to outline in detail the gross margin that they will take from the sale of that car and from each servicing they do on it.
While the proprietor of the dealership says he does not mind me knowing these things, he holds the view that "it seems an irrelevance to tell me".
When I pointed out what I had to do for him, his response was: "Yes, well yours is a peculiar industry and you have to tell me. I do not have to tell you." It would be interesting to see if, under the law of agency, he actually does have to tell me. I shall persist.
The obsession with commission is incestuous and is doing the consumer a lot of damage. We have seen the contraction of friendly societies and industrial branch offices, yet now the Government are relaunching a wonder product to fill the void that over-regulation has created. The National Consumer Council is aware of the problem and they are concerned, as many professional advisers are.
I am sure that Mr Harper is quite right that Lorna Bourke does get paid and so do most of the other unqualified voices that not only have never done our job but would not do it, yet pass regular comments on how much commission we earn without thinking through that it is our gross margin that they are talking about which is subject to a whole host of costs, as Mr Harper quite rightly states in his letter.
PS: ISAs do not spell disaster for IFAs, they spell Impossible Servicing Administration, a disaster for consumers. They are the multi-tie gimmick of the future – another interesting and, I guess, expensive experiment that the saver will bear the cost of.
Terence O' Halloran
O'Halloran & Co,