One of the stand-out aspects of the RDR – and by this I mean one of its most covered aspects in the consumer finance press – was the banning of commission on pensions and investment products.
The reason for the ban, which does not apply to mortgage and insurance products, was the long-held – and quantitatively substantiated – view that its existence introduced bias into the sales process.
One of the unwelcome aspects of the ban is that advisers can no longer justify giving advice to those with less than £250,000 in liquid assets.
This of course is not in the best interests of the general UK population. In fact earlier this year the Financial Conduct Authority said it was considering a return to some of the elements of commission.
But then comes along a case where the arguments in favour of commission are swept away.
This week, Financial Adviser reported that the Financial Ombudsman Service ruled that Openwork badly advised a client, questioning why the intermediary received £40,000 for recommending a bond.
A total of £500,000 was invested in a bond and Openwork received £40,000 up-front commission from the provider.
At £40,000 the ombudsman calculated that this amounts to 200 hours’ work, if charged at the adviser’s highest hourly rate. If the adviser worked a 40-hour week, this would be the equivalent of five week’s work.
Openwork pointed out that the advice was given before the RDR reforms were introduced, so the 8.2 per cent commission “was normal at that time” and that it was paid by the bond provider, rather than taken from the investment.
Such payments are obscene, in any industry, and while this may not be an isolated one – let us hope cases like this are where they belong, in the past.
