Calls from the Financial Services Consumer Panel and Towry Law this week to ban commission have sparked outrage in the IFA community.
IFAonline has received an unprecedented number of responses on the issue from advisers; the majority of whom are extremely concerned about the implications for their business if commission is scrapped. But why have the FSCP and Towry Law come out so strongly in favour of a commission ban?
One of the main reasons put forward by the FSCP is that commission-based business models are not compatible with FSA principles on TCF. It says advisers are far more likely to sell products which pay a high level of commission rather than providing their customers with the most suitable products to meet their needs.
However, IFAs have countered this claim by arguing consumer choice is reduced by removing commission options and, therefore, it is not in line with TCF principles.
Simon Webster, managing director of Facts & Figures Financial Planners, says: “We fully disclose commission and offer a fee alternative and still 90% of our clients opt for commission.”
Many IFAs who contacted IFAonline agree and say dropping the commission option is not popular among consumers and may be dangerous for many clients who cannot afford to pay upfront fees.
The FSCP and Towry Law also believe the removal of commission incentives will help to prevent mis-selling. Again, the majority of IFAs have come out on the counter-attack.
John Blackmore, of Longview, says: “Those who are inclined to allow commission levels to influence them will simply charge too much when working on a fee basis. “Only the very naïve will be surprised when this does not result in the end of misselling.”
Jenny Goldsmith, from Lifestyle Mortgage, also feels that fees-based systems are open to abuse and says: “What is better? You get advice from a fee-paying adviser, who does not care about you, takes the fee and you lapse the policy, or a commission-based adviser who has to make sure that the plan he/she sold you has to stay on the books as it can take up to four years for his/her commission to be earned?”
James Hickson, of St Andrews Financial, points out Towry Law’s fee structure is only suitable for high net worth individuals: “Where do Towry Law propose that the lesser mortals with £10,000 and above go to get their financial advice?”
So is there a compromise to be reached or is it all or nothing for commission? Some IFAonline readers have suggested that, rather than banning commission completely, commission caps would help to end bias and allow consumers to receive an affordable service.
Paul Miller, of Saddleworth Independent Mortgages, believes this is the best way to resolve the issue: “If there is commission bias, and I'm not saying there isn't any….it is so easy to solve - just introduce / reintroduce a commission cap for all products of the same type and there won't be any bias”.
One thing is for certain and that is both sides will be awaiting next week’s FSA Retail Distribution Review with interest as remuneration structures will be a key part of the report. Can a compromise be reached on commission or is this one debate which is set to run and run?
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