As the weeks go by so the debate about the adviser model goes on. In particular, the debate about indemnity vs renewable remuneration is causing a lot of chatter.
There are arguments on both sides although there does appear to be a ‘fees good, commission bad’ feel to a lot of commentary. Perhaps that is a reflection of the way many see the industry going. There is the call though from some suggesting clients will not pay fees, or that fees are only acceptable to those with above average earnings or financial means.
And then we have the issue of indemnity commission being the bane of the industry, with accusations that it drives churning. But the argument goes that some indemnity commission is needed to reflect the upfront expense of new business.
Trail commission also comes in for some criticism – does it adequately reward or even promote proper ongoing servicing? If there is no ongoing service provided, perhaps due to the necessity for the selling agent to chase the next indemnity commission sale, should it be ruled that trail commission must be diverted to a servicing agent of the client’s choice?
More recently, the debate has turned to ‘factory gate pricing’. It purports to have the ability to bring about total transparency to advice costs. It does this by giving clients options to pay for the advice via a fee or have the cost of advice added to the product, the key being that open discussion is had with the client about the cost of advice. Questions have been raised though about how far the transparency will drill down into product charges to reveal things like soft commissions and volume-related deals.
Of course, all this debate goes on in tandem with the FSA’s review of retail distribution. If there is any danger that this debate may quieten down in the near future, which I doubt, it will certainly be at the forefront again when the FSA publish a discussion paper on the review later this year, setting out its analysis, initial conclusions and recommendations.
I am not raising this topic to discuss the merits of any particular viewpoint on this interesting and crucial debate. I raise this topic to outline the uncertainty that exists in the market place as a whole. Some, of course, are very certain of their view and have set sail down a particular route.
It does seem apparent to me that there will be changes and even if a revolution is called for, I have serious doubts about how quickly a revolution could be achieved. A ‘big bang’ approach may just be a step too far.
I believe it will be an evolution, although significantly faster paced than Darwinian Theory, but all the same evolution is about adapting to change, albeit rapid change.
From a technological stand point then, as I have stated in previous blogs, it is essential for advisers to embrace technology. The danger is in adopting one particular technical solution that is wedded to a particular proposition. It may prove difficult to transition into whatever the new world environment migrates towards.
Graham Coxell is business and commercial director at Capital Financial Services.
The views expressed are those of the author and not those of the company he represents.IFAonline
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