Regulation  

Questions raised about why FCA would bring back commission

Questions raised about why FCA would bring back commission

Various trade bodies and industry experts have jumped on comments made by the Financial Conduct Authority’s acting chief executive which suggested a return to some form of commission is being considered.

This morning (11 January), on Radio 4’s Money Box programme, Tracey McDermott admitted the Financial Advice Market Review may reintroduce some form of commission, but denied there would be any reversal of the Retail Distribution Review reforms.

She told presenter Paul Lewis the regulator does not want to go back to the problems of a pre-RDR market.

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“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.”

She also mentioned the FAMR has received 290 responses, which will be examined next month.

Personal Finance Society chief executive Keith Richards said the question of whether to introduce a lower cost ‘simplified’ regulated advice option - which might also include additional charging mechanisms under the original principals of client agreed remuneration (CAR) - is a logical feature of the FAMR.

He said: “Transparency will still be essential and the poor behaviours of commission can be avoided.

“Any simplified solution must, of course, afford professional standards and appropriate consumer protection and under a transparent CAR principal, increasing the options to pay for advice could work equally as well for full advice.”

He pointed out while the RDR did much to improve transparency of advice ‘cost’, the move to fee-only based advice works less well for some consumers, especially those who have never engaged an adviser previously or believe their needs are straightforward.

“Without jumping to any conclusions, solutions must be sensibly explored and it is encouraging that the FCA are open to additional payment mechanisms, which could for example include the use of transparent fee recovery from investment/savings and the introduction of a total expense ratio principal,” added Mr Richards.

The Association of Professional Financial Advisers’ director general Chris Hannant suggested the FAMR’s expert panel had been discussing affordability issues and the return of commission would have been one of their responses to the challenge of up-front fees.

He said: “Our response is to reduce the cost to consumers by reducing the regulatory cost burden on advisers, but if the FAMR is to recommend some kind of simplified process, it is important that this does not tip the playing field and create a bias against full-fee regulated advice.

“I haven’t had a chance to speak to members on this yet, but would think that some would welcome a return to commission, while others would say that we’re in a different world now and their businesses are in a more stable place due to recurring revenue streams.”

Garry Heath, director general of alternative adviser trade association Libertatem, stated the regulator will never admit it was wrong about the RDR.