The retail distribution model is in question because of its lack of transparency, rather than its use of commission, says Brett Davidson, managing director of FP Advance.
He argues whether advisers charge commission or a fee is not the core issue and the problem with the retail distribution model lies in its lack of transparency.
He believes many advisers do not present a clear outline of what they will do and how much it will cost, and instead skirt around the issue hoping to be paid adequately when they sell a product.
He states: “Whilst I agree the current model does not serve many consumers, providers or advisers, banning commission is not the answer. This seems a pretty draconian measure in a free market society that would probably result in more limited access to advice.”
Davidson points out that if customers at a supermarket checkout were only told the price in the next couple of weeks they would lose confidence in the supermarket as a business, but many advisers are dealing with their clients in this manner.
He believes providers have a role to play in the retail distribution review because they have told advisers and consumers they are receiving a ‘free lunch’ by working on the commission model.
He adds: “Regardless of how it is dressed up, masked in the fee structure or subsidised by one client group for the other, ultimately the client always pays. The sooner the Financial Services Authority (FSA), providers and advisers start telling this to consumers, the sooner we can hope for some rational behaviour in the marketplace, regardless of a fee or commission model.”
Terry Arch, IFA at Eastgate Financial Services, believes the FSA’s agenda is to force the majority of the public into the hands of banks and building societies who are tied or multi-tied.
He states: “The FSA’s argument is supported by IFAs who only charge fees because they believe they are holier than the IFA who takes commission. There is room for both. For the majority of the public, if it is the difference between spending money on a well-earned holiday or paying for financial advice, they would take their holiday.”
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Emily Perryman on 020 7968 4554 or email [email protected].IFAonline
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