Just as the sun finally sets on commission, is there a new beam of light being shone on the very same issue?
On the orders of regulators and politicians, commission, in the guise of payments between fund firms and platforms and on qualifying auto-enrolment schemes in pensions, is banned as of April. It is still payable to advisers on off-platform, legacy retail business, but Mifid could ultimately put paid to that, too.
Yet we now have comments from Tracey McDermott, acting boss at the FCA, not ruling out a return of commission in some form – admittedly in remarks made under close questioning and without enthusiasm.
There are essentially two interpretations of what this means. The first is that she just answered a question honestly on the basis of ‘never say never’. To do otherwise, I am told by those who move in regulatory circles, would be to prejudge the Financial Advice Market Review. They point to the fact that she also told the MoneyBox programme that there is “no intention” of reversing the RDR.
The second interpretation is that McDermott is running a flag up a pole to see if anyone salutes (and how sharply they do so).
So what does it all mean? Well, on those two interpretations, either everything or nothing. But it is possible that this heralds a new bout of the liberalising, libertarian zeal that has already given us pension freedoms and the promise of annuity resales. In a similar vein, the government could decide to bring back commission for targeted or focused advice.
Perhaps advisers will only retain the independent label if they don’t accept commission, such payments only being allowed in the (theoretically) more controlled arena of restricted advice.
Such a system was originally suggested when polarisation was struck down by the FSA and the Treasury around the turn of century. It may provoke a stomach-challenging feeling of déjà vu among the older advisers who thought such debates were consigned to the dustbin of history. Regardless, there is certainly still a lobby saying, ‘we need salesmen and saleswomen back, and they need to be incentivised in some way’.
Now, before anyone goes off to dust down a commission-based business plan, it is important to ask who would benefit. Commission may not always have been at fault, but under the old regime most types of financial business – whether fund managers, insurers, banks or advisers – sustained some damage to reputation, bottom line or both. It also took life offices a remarkably long time to see the difference between new business and profit and loss.
Yet to play devil’s advocate, you could ask whether there is in fact a justification for a limited return commission, perhaps on retirement advice? It may also become a matter of national importance to spread the investing habit, especially as the defined benefit era draws to a close. Could commission help?
I write as a journalist who warned continually over the past decade that taking a purist (and consumerist) view of advisers, investing and pensions risked creating a yawning advice gap.
You could argue we have ended up with a perfect advice market for the upper middle classes, which is a rather peculiar state of affairs. But a return to commission? That would be the most spectacular U-turn in the history of retail financial services.
John Lappin writes on industry issues at www.themoneydebate.co.uk
