Calls by the Association of British Insurers to ban trail commission have been branded "crazy" and "sad" by advisers.
In a leaked document set to be given to the regulator as a response to its retail distribution review, the ABI presses for a ban on the current system of remuneration.
It recommends the FSA should bring in legislation preventing product providers from paying trail commission to IFAs or multi-ties for investment advice.
The FSA responded by stating the process they were undertaking was an open review and therefore input from bodies such as the ABI would be taken on board.
But advisers have reacted with anger at what they see as ABI interference – asking ‘what has it got to do with them?’
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.”
Bill Wells, of Protect & Save, adds: “Why should anyone take into account the views of ABI on commission trail?
“What is so sad is the ABI and the FSA are blind to the obvious. It is trail that ensures genuine advisers continue to provide a back-up service to clients after the original sale. It is initial commission, especially on bonds, that is the problem.”
Bob Little, 61, managing director of Bob Little & Co, says he can envisage his retirement funding going down the drain if the ABI gets its way.
“I am incensed by the thought that trail commission may be taken away,” he adds. “I have been in the industry for over 21 years and have built my business up based on giving good quality advice at the expense of up front high charging contracts.
“The last thing which should be attacked is trail, on the grounds if we are not looking after clients they will move to other IFAs. It is in our interest to retain clients.
“Taking away the trail takes away the incentive of maintaining a long term relationship and makes going for high earnings up front more likely.
“I can not see where the ABI are coming from other than it being a crazy suggestion.”
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.
An ABI spokesman said last week: “The level of interest and debate created by our thoughts in an early draft of a submission to the FSA Retail Distribution Review shows how important this topic is.
“Part of any discussion about the future of the industry must include potential reforms to the commission model, but any reform must be backed up by evidence and a real assessment of its impact.”
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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