Trail commission is no more than upfront an fee paid over a period of time and the ABI should be applauded for recognising this, according to Andrew Fisher of JS&P Towry Law.
In a document set to be given to the FSA as part of its retail distribution review, the ABI presses for a change in the current system of remuneration.
It recommends the FSA bring in legislation preventing product providers from paying trail commission to IFAs or multi-ties for investment advice.
The call has prompted anger among several advisers, who argue trail commission builds value in a business and separates the dedicated advisers from the also-rans as it promises a back-up service for clients.
But Fisher, chief executive of JS&P, says this simply isn’t accurate.
“Finally, someone in the industry [the ABI] has started to talk some sense,” he told IFAonline.
“Trail commissions are duly recognised by the ABI as simply upfront commissions that are paid over an extended period of time.
“They do not represent any annuity income as they do not require the adviser to service, or indeed see, the client again post-sale and as such add no value to the relationship.
“The sooner the IFA industry recognises that commissions directly bias advice and are inherently incompatible with independent advice the better for all clients and the overall reputation of the industry.
“The FSA review is seeking input from across the industry and as the head of one the largest IFAs, who also happens to be entirely fee-based, I applaud this timely comment from the ABI.”
The ABI criticised the remuneration system in the UK in a draft of a submission it was set to make to the FSA.
It argued a system of customer-agreed remuneration should be brought in for all business which was similar to factory gate pricing.
The FSA says it is undertaking an “open” review and therefore the views of the ABI will be considered.
But some advisers are cross with what they see as ABI interference.
Alan Harris, principal of Glasgow-based Harris Investment Management and an advocate of fees over commission, says: “Which planet are these ABI people on? Certainly not the same one as me.
“Trail commission builds value in a business. In fact it is the only way to value an IFA business, because past business, clients and goodwill are worthless unless you can guarantee repeat business which you cannot.
“Trail Commission has allowed my business and I guess many others to ride out the troughs of the market when no one wanted to do any business so I am still here today to service my clients.”
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 Scott Sinclair on 020 7034 2636 or email [email protected]IFAonline
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