Initial commission is a disappearing concept among investment intermediaries, as Merrill Lynch Investment Managers has evidence to suggest IFAs have shifted from commission to fee-based remunerated advice.
Richard Royds, head of UK retail at MLIM, says the fund management house believes it has proof of a clear move by IFAs to fee-led advice as the firm now pays less than £1m in distribution commission per £100m of funds invested, compared with 10 years ago when the firm paid out £3m per £100m.
“The initial charge feels as though it is something from the past, rather part of the present,” says Royds.
“For every £100 sold, we pay out less than £1m in commission, and we are paying as little commission as we have ever paid because the IFA market is moving towards fees.”
According to Royds, although the average age of an IFA is still thought to be around 56, many advisers now acknowledge there is little business potential to pass on to successors if the earnings are found largely upfront through short-term gains in initial commission.
“IFAs know how to sell a bond or a product and keep things ticking over, but they are now reassessing the units they earn and the business potential over the long-term.”
Royds believes the reduction in initial charges paid is the result of a two-fold shift towards more sustainable long-term remuneration through fees or trail commission as well as greater use of fund platforms by intermediaries.IFAonline
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