Opinion  

Why only robo-advisers will enjoy commission

Emma Ann Hughes

Emma Ann Hughes

I suspect commission is set to make a return - but only for advisers of the Metal Mickey variety.

Since acting chief executive of the Financial Conduct Authority Tracey McDermott mentioned the return of commission was being considered as part of the Financial Advice Market Review, there has been much talk about how the return of this form of payment would work.

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 Retail Distribution Review.”

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According to the Financial Services Authority one of the principal aims of the RDR was to allow consumers to have confidence that the advice they receive is in their best interests and that advisers were not simply recommending providers which pay the highest commission.

So, why do I now think commission is making a comeback - but for robo-advisers only?

Earlier this week the government confirmed the auto-enrolment commission ban on occupational schemes will come into force for new arrangements from April 2016.

This ban applies to all qualifying auto-enrolment schemes and will be monitored by The Pensions Regulator.

The Department for Work & Pensions has stated the ban relates to ‘advice or a service’.

The DWP added there may be things that the service provider provides which do not fall within that term and are more in the nature of the administration of the scheme - for example, self-service tools or the provision of generic information.

Many may have missed this line in the government’s latest set of auto-enrolment rules, but I feel it is a taster of things to come.

I am starting to suspect robo-advice could be shoved into this category of “self-service tool” by a regulator under pressure to make sure the mass market who can’t afford the fees living and breathing advisers now must charge because of the regulatory fees they have to pay.

If so, it is clear from the auto-enrolment rules that it is the robo-advisers rather than the living and breathing ones who will be able to earn commission again.

Sorry to break it you Ms McDermott, but if you think robo-advisers can not be biased by commission you are sorely mistaken.

It is human hands who will play a part in deciding the algorithms that dictate the end advice the robo-adviser delivers to consumers.

Human hands that build robo-advisers can be swayed by better commission payments from one provider over another’s lesser amounts just as much as any living and breathing adviser could have been persuaded.

In others words - by bringing back commission but just for robo-advisers don’t delude yourself that you are not breaking one of the principal aims of the RDR.