OpinionJan 15 2016

Return of commission could be bad news

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On Radio 4’s Money Box programme, Tracey McDermott, interim chief executive of the Financial Conduct Authority, admitted the Financial Advice Market Review may reintroduce some form of commission.

She denied there would be any reversal of the Retail Distribution Review (RDR) reforms, telling presenter Paul Lewis the regulator does not want to go back to the problems of a pre-RDR market.

Ms McDermott said: “What we do want to look at is what is the best way of delivering advice and guidance across the market. So I wouldn’t rule out that there may be some element of commission, but we are not going to reverse the RDR.”

According to an article on the FSA’s website (yes, it does still exist online) titled ‘Commission Ban’ “one of the principal aims of the RDR is to allow consumers to have confidence that the advice they receive is in their best interests and that advisers are not simply recommending providers which pay the highest commission.”

So, actually, according to your predecessor organisation’s words Ms McDermott, this is a u-turn.

Anyway, Ms McDermott and the FCA, I am not here to take issue with that.

What was a cause of concern for me is she also mentioned to Mr Lewis alongside this u-turn on commission that the Financial Advice Market Review, which is exploring ways to get advisers back in front of the mass market, has received 290 responses.

Many of you were swift to point out the return of commission could be a good thing for consumers.

Steve Farrall quoted Noel Coward in The Italian Job saying “everybody in the world is on commission” and another adviser noted “What us IFAs have got to do is realise what our clients want. Commission is not a bad way of paying for our services.”

To claim commission was bad and fees are good is too simplistic.

This is despite the fact I personally would prefer to pay a fee upfront for advice.

I would also rather buy a second hand car upfront than pay for a new car in instalments. If I don’t have the cash to pay for something upfront I don’t think I should have my object of desire.

I know these days, with this view, I am far from the norm. Car dealerships simply look aghast if you don’t want to commit to paying a few hundred pounds a month for years to come.

The regulator should not have stifled choice with the RDR requirements for how advisers had to be paid. Commission should never have been taken off the menu in the first place.

But instead of rejoicing at the thought of the return of commission I am worried the FCA considering this method of payment could mean it has ditched the idea of reducing the cost of advice or reducing the liability you face.

They wouldn’t have to cut costs if the public were allowed to pay for it in what amounts to, as car dealerships phrase it “manageable monthly payments,” would they?

They wouldn’t have to cut costs if the public were allowed to pay for it in what amounts to, as car dealerships phrase it ‘manageable monthly payments,’ would they?

Unlimited liability, having to achieve top level qualifications and keeping on top of ever changing world of pensions, investments, etc, comes at a cost.

A cost that seemed too dear to customers with smaller pots of cash to invest when they were told they had to pay it upfront rather than see small, regular amounts deducted from their investment returns.

I hope I am wrong to fear this.

Unlimited liability, having to achieve top-level qualifications and keeping on top of an ever-changing world comes at a cost.

I wouldn’t recommend reducing qualification levels and I expect the adviser I meet with to know what is going on with pensions, investments, etc.

What I would urge is that the FCA reduces the cost of providing advice and does not simply think that re-introducing commission is the solution.

It costs to operate in this industry and you need to give advisers confidence in how they charge for doing so.