Easter has passed us already! The deadline for submissions to the RDR now seems a long time ago and I must admit I had expected the discussion around the RDR to quieten down a bit.
So far, it hasn’t and here we are, already into April, when the FSA has promised its interim report.
On this subject, one particular story caught my eye recently suggesting 80% of an adviser’s income is derived from initial commission.
It was based on a survey purporting to be one of the most extensive adviser studies ever conducted, covering 8,000 advisers from 1,357 firms.
Much has been written about how advisers are remunerated and how many are moving to fees.
The concept of customer agreed remuneration (CAR) seems likely to be endorsed by the FSA in some form or another, however this survey suggests that there is still a long way to go to get away from a reliance on initial commission.
The story also made the point that remuneration is a two-way process and that if such commission deals are offered by providers then we should not be surprised that they are taken up!
This is a difficult subject as, in a free market, a company should be free to choose how much it wants to pay its agents. We know that any attempt to return to a maximum commission agreement is also usually dismissed in the name of free competition.
The same survey astonished me even further when it also disclosed that 43% of firms have no technology systems in place, or just use spreadsheets and paper-based systems.
This is a market that I barely recognise, but makes me remember that our industry is a very broad church indeed and it is extremely difficult to work within one set of rules that seeks to cover firms from opposite ends of the spectrum.
I still feel that, unfortunately, there is to some extent an element of chance in choosing a financial adviser and that this really is a barrier to consumer acceptance.
There is also confusion as to the nature of the agency relationship – and let’s not forget that an agent should act in the best interests of the principal.
Is the adviser the agent of the provider (he is if he receives a commission)? And should he be the agent of the client (for which he is paid a fee or deducts an amount from the contract)?
I do hope that the interim RDR report is strong in its recommendations on the introduction of CAR (this could include commission, if the customer so agrees) and particularly on a minimum qualification level for advisers.
There is a long way to go, but to get off on the right foot would be a very encouraging start.
Mike Morrison is pensions strategy manager at Winterthur.
The views expressed in this article are those of its author and do not necessarily represent those of the company he represents, IFAonline or any other Incisive Media affiliated organisation.IFAonline
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