FSA Bans Commission Sales from 2012

Cannon_Fodder

http://news.bbc.co.uk/1/hi/business/8589042.stm


" The Financial Services Authority (FSA) is banning financial advisers from receiving commission payments for selling financial policies. The decision is a revolutionary change for the financial services industry.
Commission payments have been at the heart of mis-selling scandals involving policies such as mortgage endowments and payment protection insurance.
"New rules... will remove commission bias from the sale of retail investment products," the FSA said.
"Firms will have to be upfront about how much they charge for their services, and no longer hide the cost of their advice behind the cost of a product," the FSA added. "



Will this worsen advice, as advisors will not wish to spend sufficient time on getting the whole picture, or improve it by removing bias towards high commission products ?

Opinions?

dunstonh

Wake up BBC, this has been coming for nearly 3 years now and the date has been set for about 2 years.

Will this worsen advice, as advisors will not wish to spend sufficient time on getting the whole picture, or improve it by removing bias towards high commission products ?

Wont make much, if any difference, to most IFAs. It will hit tied agents mostly due to removal of indemnity.

From the IFA point of view, instead of the provider saying you get x%, the IFA will choose how much they get. Currently the typical maximum on collectives is 3% plus 0.5%. Yet the FSA found that the average is 1.8% plus 0.5%. Average meaning some take less, some take more.

Also, for many years now, there has been very little commission bias as providers have generally standardised terms.

The bottom end of the market is likely to find charges go up. The middle market will see little difference and the top end will be better off as the greedy advisers wont be able to take open ended percentages any more but have a cap on it. So, it will hit transactional model businesses hard but have little or no impact on servicing businesses. No-one will mourn the transactional businesses going (apart from those that own them!)

For reference, the BBC article is misleading and incorrect as the changes only apply to investment related contracts. Not insurance. So, mentioning payment protection (which is mostly sold by non-advisers) is daft and endowments were sold in a different era. Commission bias did apply with them for obvious reasons but that era has gone. Making changes now is a bit late. It doesnt have any impact on mortgages either.

VIGILANT22

Can't understand why the BBC has decided to publish this in Mar 2010..this is "old news"...preperation for RDR has been going on for the last couple of years!!...lazy journalism.......

It's the banks (not IFA's) that have target led sales of GIBS, structured ( precipice bonds) unsuitable pensions, PPI etc........however the FSA are not known for keeping their eye on Bankassurers..

It is not IFAs who have ruined the industry, it is the various regulators over the years alongwith Banks....who the FSA are "in bed with"

Mortgage and protection advice does not fall under RDR....

TEDDYRUKSPIN

Erm. All advisors knew this was happening but many people (consumers) did not know.

It actually does not affect banks - it will mean that they will charge.

This will apply to IFA's - the rubbish will just join banks again. Probably as over-inflated senior FPM's, commercial FPM's or stealing off the rich as bank IFA's or premier FPMs. Welcome to the new world.

It will still be the same.

Dan_1976

The big impact will be when they do the same for mortgage and insurance. Less people will pay for a service that can be done on the web.

By by mortgage broker!

Good old BBC, they must have the Daily Mail team working for them.

Out of interest, will the providers pay no commission at all or is it that commission only sales are banned?

dunstonh

Erm. All advisors knew this was happening but many people (consumers) did not know.

Its been making the media for the last 3 years. Nothing new has been published by the FSA apart from the fund supermarkets/platforms.

It actually does not affect banks - it will mean that they will charge.

It will affect all adviser types. Not just IFAs. However, there are rumours that the banks may look at basic advice only, which is exempt. That will mean less training, less liability and more expensive products and therefore more profit....except for consumers. They may have an IFA arm to deal with higher net worth clients but expect their charges to be as high, if not higher, than they are now. I doubt the quality will improve there.

Out of interest, will the providers pay no commission at all or is it that commission only sales are banned?

With investment class, it can still be taken from the product but not factored in charges over a period. So, that kills off the stakeholder pension as that product cannot fit the FSA requirements post RDR. However, many personal pensions are now both cheaper than stakeholder and pay the adviser more at the same time.

herbiesjp

Dan_1976 wrote: »

The big impact will be when they do the same for mortgage and insurance. Less people will pay for a service that can be done on the web.

By by mortgage broker!

Good old BBC, they must have the Daily Mail team working for them.

Out of interest, will the providers pay no commission at all or is it that commission only sales are banned?

Mortgages and protection are not included though.

VIGILANT22

herbiesjp wrote: »

Mortgages and protection are not included though.[/QUOTE

Don't hold your breath!


http://www.mortgagestrategy.co.uk/regulation/fsa-to-review-quality-of-brokers-protection-sales-%C2%A0/1009141.article

herbiesjp

If you are mortgage and protection - commission is not affected.

VIGILANT22

http://www.ifaonline.co.uk/cover/news/1598493/rdr-protection-paper-mortgage-brokers-protection-commission-disclosure

Mortgage brokers could be dragged into the disclosure of adviser remuneration proposed by the FSA.

The regulator has clarified those protection selling advisers who will be affected by its latest RDR but admitted a flaw which could see mortgage sellers also having to reveal their commission payments.

It confirmed that "only pure protection sales and advice ‘associated' with investment advice" is intended to be subject to its proposals to force disclosure of adviser remuneration.

However, if an adviser firm decided to apply the transparency to all protection sales business-wide, as opposed to on a client-per-client basis, mortgage brokers working for that firm could also become compelled to declare their commission payments when selling protection alongside a mortgage.

herbiesjp

But I already declare commission anyway on the illustrations and KFIs.

All part of TCF

I agree with all your points though.