The Association of Investment Companies (AIC) today calls for the FSA to consider mandating a factory-gate pricing system for financial advice.
The Association says the FSA must use the Retail Distribution Review to implement radical change to help the industry provide simple, value for money products with high quality advice and prevent mis-selling.
It follows similar pleas from Winterthur last week, which offers its own version of factory gate pricing called ‘Flexible Adviser Remuneration (FAR).
According to the AIC, current fee and commission structures do not provide sufficient incentives to provide good advice and the best way to change this is to un-bundle the cost of advice from the cost of financial products.
Daniel Godfrey, director general of the AIC, thinks unbundling should be taken even further, adding: “Of course, the price of the actual advice given should be made transparent. But it is even more important that investors should be able to buy directly from manufacturers at the net price.”
Godfrey stresses that it is important that consumers only buy through advisers when advisers can demonstrate that their advice adds value.
At present, the workings of the fund market mean if consumers do their own research and pick their own products, they will still have to pay for advice that they do not need.
According to the AIC, some financial advisers allow consumers to use their agency on an execution-only basis to place business, they then rebate initial commission and earn profit from the trail.
Godfrey says: “Independent Financial Advisers can make a fortune out of not giving advice. It sounds mad but it’s true and it exemplifies the lack of incentive inherent in the system for advisers to raise standards."
Godfrey also states that not only IFAs are in need of such radical change; manufacturers should also restructure incentive-based pay systems to focus on customer satisfaction and retention instead of sales volumes.
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