Commission menus may not fairly reflect the actual cost of advice, suggests analysis by Taxbriefs, as the data collated could be distorted by "rounding", the product category it is included in or by payment method.
Details of Taxbriefs’ monthly newsletter - Taxbriefs Financial Timesaver - suggests the information included in an adviser’s commission menu could be distorted in part by the FSA’s methods of collating data, as market average commission will be 'rounded'.
The FSA has designed commission menus to try and encourage consumers to shop around when seeking financial advice and bring more competitive rates.
However, Taxbriefs highlights analysis by PricewaterhouseCoopers suggests the FSA’s own data cannot confidently be trusted as an indicator of commissions as PwC says 'average rates are rounded at a level that does not imply a high level of accuracy'.
Moreover, Taxbriefs’ own study of the 04/03 cost of advice consultation - labelled in the newsletter as À La Carte Commissions Menus - suggests regular premium products could, at first glance by a consumer, appear to be better value than single premium products because both regular and single premiums commissions will have to be recorded together within one product type - investment bonds, for example, will include all single premium whole life and endowment based products, even though there could be significant differences between products and commission levels.
Some advisers could find their maximum commission looks worse than the market average, suggests Taxbriefs, as results are weighted by volume - a factor which will benefit intermediaries able to offer substantial commission discounts for large volume of business.
That said, IFAs could find their maximum commissions are lower than the FSA’s market average for products where tied sales are relatively high, even though the product charges may show no difference between channels.
Aside from the additional complications of explaining commission menu intricacies, advisers could find they will have to update their menus more frequently than the y might like and at a higher cost - even though the FSA says it will review its rates ’regularly’ - as commission rates within products such as investment bonds can alter quickly.
This is just one of the short commentaries Taxbriefs offers on financial developments within its newsletter.
Our subjects covered include:
- Budget 2004: First Thoughts
- With Profit, Without Business
- Jersey Tightens [its rules on residents]
- Long Term Investment Returns
- Penrose, At Last
- Lights, Action, Revenue
- You May Have Missed
- Market Facts and Commentary
- A Return to Inflation?
Contact Taxbriefs for a copy of their latest monthly newsletter.IFAonline
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