As the implementation date of depolarisation edges closer, concerns about the credibility of this long-awaited ‘commission menu' are increasing, along with the damage it appears to do to commission-led adviser business.
Use of collective investment lump sum commission rates in the menu, as they currently stand, would leave the advice delivered by many IFAs looking far more expensive than it actually is, particularly as these products can be popular with consumers when advised by financial intermediaries.
As many product providers point out, lump sum collective investments are often sold to clients, rather than bought, as a favoured investment for additional retirement income.
The difficulty now, however, is any IFA who presents the menu under these terms is going to see their own credibility damaged because they will have to explain why the standard rate of commission they receive is substantially higher than that listed as the market average.
Unfortunately, no matter how much the industry tries to suggest this damages the credibility of the menu, that message is unlikely to get through to the consumer and it is the intermediary who will end up defending their reputation.
Without wishing to sound too cynical, this situation does play into the FSA’s hands somewhat as the threat of appearing more expensive than “the average” could encourage more advisers to turn their businesses into fee-based practices. This was, as we all remember, the original intention of the menu and depolarisation – independent financial advisers would need to be fee-based in order to maintain the independence label.
But there could yet be one saving grace: collective investments included in this market average calculation over recent months may appear to be trail-only new business because they were moved from one collective to another, perhaps because they are being placed on fund platforms.
If this is the case, it is likely the FSA’s market average commission rate could rise again at a later date and will better reflect the true market average, because there is only so much business which has to be transferred in this manner and any new sales will eventually be true new sales, carrying initial commission again.
The only hope is the image of a commission-led IFA does not lose too much business in the meantime, simply because a piece of paper issued under regulatory rules suggests the consumer is getting a raw deal through their chosen adviser.
Due to leave 31 May
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