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MSE News: FSA bans commission to advisers on investments
in Savings & investments
40 replies 4.4K views
Former_MSE_Guy Former MSE
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FSA bans commission to advisers on investments
FSA bans commission to advisers on investments
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They are banning the providers from setting the remuneration. Instead the adviser will set the remuneration. That remuneration can be paid via the commission system.
So, lets say Cofunds pay 3% initial commission. Post 2012, the adviser can choose to be paid a 3% fee. So, nothing changed. However, the adviser could take 1% or 5%.
Most investment contracts already work on this basis. The charges will also be unbundled so you know who gets what (i.e. the fund supermarket cut, the adviser cut and the fund house cut) rather than just a charge. This is not new news. This has been coming for years now and the dates were known years ago. So, providers and advice firms have already been moving to the post RDR model for some time. Indeed, many providers no longer pay commission but work on fee only basis. Without the consumer even being aware of it.
Low value consumers are likely to see charges rise. Middle ground will see little or no change. High value consumers will be better off.
I've seen a lot of IFAs saying they intend to charge £250 an hour to replace what they were making in commission.
They may be missing the point. While the product providers may have got good value paying IFAs high levels of commission as salesmen for their products, it remains to be seen whether the customers will place the same value on their services for providing advice - too often based on very limited knowledge and qualifications. Given the choice, I doubt it.
The role of an IFA will need to move from being a freelance salesman for the investment industry to being a proper advisor for consumers. And if so then charges will need to be at a level that the consumer does think is reasonable value.
It is seriously good news for ALL investors seeking independent financial advice that the commission bias will be removed.
It is moving us a long way toward the ideal of those seeking independent financial advice knowing what they are paying and being given suitable advice not biased by commission.
It should also mean simpler financial products. There will be less need for complicated products such as structured investments which pay high commission and are designed deliberately to facilitate mis-selling.
Rollinghome is right about the effect on IFA renumeration. An unintended consequence is that we may see a glut of double glazing sales people as hoards of commission based IFAs seek to retrain.
One of my clients offers the option to all his clients and and last year a grand total of one wanted the fee. Even professionals who charge fees to their own clients wanted to go for commission.
The remuneration paid via commission has been stated for the last 15 years anyway, so DunstonH is right - it will become more explicit but it is not really anything new.
But you will still get poor value from the bank!
To put it another way, his fees are seen as too expensive for quality of his advice and the service he provides. Customers don't want to pay fees for advice that they don't think is good value but often don't realise how much commission payments cost them.
So all the threats and rants from IFAs about it were misguided? I was amused to see the raving on a website for IFAs with one nutter even threatening to go to the European Court of Human Rights for having his livelihood threatened. Rightly or wrongly, he obviously thinks it could be the end of his gravy train.
I expect you're right that many IFAs will try to circumvent the intentions of the FSA, in which case they may need to review the situation again.
Funny that. If your "client" is an impartial adviser how does he know whether a commission will be available ?
My experience is the exact opposite - fees every time, I wonder what I must be doing differently ?;)
This should be a real opportunity for advisors able to offer a better standard of advice. BBC iPlayer from about 8 mins in: http://www.bbc.co.uk/iplayer/working_lunch/
Yes and no.
You can continue using the adviser in the same way using the same agreement. Or you could go for a new agreement which may be better for you or may be worse. If worse, then you can appoint someone else instead and switch to their terms.
At the moment Cofunds decides how much as a maximum the adviser gets. The changes will mean the adviser will decide, not Cofunds. The same method will still exist though. You wont need to be suddenly writing out cheques.