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Fsa To Ban Commission For Advisers

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FSA to ban commission for advisers

Financial advisers are to be banned from receiving commission for selling investment, pension and life assurance products from 2012, under radical new rules announced on Thursday by the Financial Services Authority.

In its Retail Distribution Review, the regulator set out new measures to “ensure that commission-bias is removed from the system – and recommendations made by advisers are not influenced by product providers.â€

Commission – the payment made by industry providers to advisers who sell their products – has been blamed for a series of mis-selling scandals over the past 20 years, involving mortgage endowment policies, personal pensions and “precipice†bonds. But Thursday’s proposals are the first to acknowledge that the practice has harmed investors.

The FSA said: “The proposals bring to an end the current, commission-based system of adviser remuneration: we propose to ban product providers from offering amounts of commission to secure sales from adviser firms and, in turn, to ban adviser firms from recommending products that automatically pay commission.â€

Instead, investors will be told how much the advice is going to cost up front, and will be given the choice of paying it as a fee, or having the cost deducted from their investment. Crucially, the amount the adviser receives for recommending a product will be negotiated with the investor, and not determined by the product provider.

Fee-only advisers, who already charge a fixed or hourly rate for advice and rebate commission to investors, welcomed the news.

“This is a great day for the consumer,†said Andrew Fisher, chief executive of advice firm Towry Law. “It is a ban on the bribery and corruption that has plagued industry. Misselling driven by commission should now end.â€

At present, approximately 80 per cent of the work done by the UK’s 35,000 independent financial advisers (IFAs) is on a commission basis, according to estimates from unbiased.co.uk, the professional advice website. A further 50,000 financial advisers, who work as ‘tied’ or ‘multi-tied’ agents of banks and insurance companies, also operate on commission.

Under the FSA proposals, the distinction between these different forms of advice will also be made explicit. All investment firms will have to describe themselves as offering ‘independent advice’, giving recommendations from the whole of the market “based on comprehensive and fair analysisâ€, or ‘restricted advice’, giving recommendations on their own range of products.

“The proposed separation of the market will provide real benefit to consumers,†said Chris Cummings, director general of The Association of Independent Financial Advisers.

There will now be a clear distinction between independent advice, which is unbiased and unrestricted, and advice that does not meet these requirements and is therefore restricted.â€

However, these changes to the way advisers are paid – and a new requirement for professional qualifications equivalent to the first year of a university degree, could see one in five financial advisers quit the industry, according to some estimates.

Consultancy group Oxera said most estimates put the level of exit from the independent advice sector at about 20 per cent of firms, but with most of their staff expected to join the non-independent, or ‘restricted’ sector.

“Changes in the commission model will have a significant impact of the number of advisers,†said Drew Fellowes, head of insurance advisory at KPMG. “The FSA position on factoring [advancing payments to advisers] will exacerbate this. Consumers will lose out if advisers exit the industry and providers cannot meet demand for low cost distribution.

Investment providers, meanwhile, expressed concern that the needs of lower-income investors were not addressed by the new rules.

“We are disappointed that the proposals do little to encourage savings and advice for the mass market,†said Maggie Craig, director of life and savings at the Association of British Insurers. “With half of the UK population not currently saving enough, the FSA must not lose this opportunity to help individuals access financial advice that suits their needs.â€

Two further forms of advice – “basic-advice†on low-cost “stakeholder†investments and “simplified advice†on guided sales – are to be retained under the current proposals, but some fear this will not help consumers.

“The labelling of the types of advice available remains a concern, “ said Julie Patterson, director of authorised funds & tax at the Investment Management Association. “We question whether the ‘simple advice process’ and ‘basic advice’ are needed, and having both can only result in confusion.â€

Hmm. This is going to piss a lot of people off, but we might see a hint of integrity within the FA ranks in due course.

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Does this include the culprits of the crash such as Estate Agents?

:P Does it include the perpetrators of

LIAR LOANS

like HBOS, [+ all subsiduaries], Northern Crock, RBS, etc etc.?

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FSA to ban commission for advisers

Hmm. This is going to piss a lot of people off, but we might see a hint of integrity within the FA ranks in due course.

To be fair, I have seen one FA who switched his business model some time ago so he doesn't take the kickbaks - he even credited what he got to client accounts!

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FSA to ban commission for advisers

Hmm. This is going to piss a lot of people off, but we might see a hint of integrity within the FA ranks in due course.

This in my view is one of the worst decisions the FSA has ever made on a number of counts.

1/ There have been quite a large number of fee vs no fee IFA's around... if people were concerned they could have made a choice.. many did. What some will have found is that if an IFA ( through offering good advice) would have made a commission of £10,000, then often their fee would have come miraculously to a similar amount.

2/ Paying a fee will not definateively be cheeper for customers.

3/ The rules still allow for product providers to make payments to IFA's, just not as part of the individual product sale. They could for instance pay them to come on training courses regarding their products, pay them to include their products within their panel etc etc. Commission or payment on results is by no means dead, it'll just change shape.

4/ Consumers I suspect will not get a better deal partially because the assumption that commission payments will be worked back into products is entirely wrong... Imagine as an example someone taking out a £100,000 investment... the adviser might have got £3,000, but this didn't mean the customer only had £97,000 invested (actually bizarely sometimes the day one investment figure was higher eg £105,000).. the adviser would be being paid out of the product providers future commissions NOT his initial investment amount... for the consumer to get better value, the product providers on going management charges would have to fall and I am not sure that will happen..... they might well actually turn round and say actually the fees stay the same, you don't get the extra £5k and you pay a fee to the adviser.... they might do this becasue they have higher marketing costs etc due to commission going........ so the consumer more than likely will get a worse deal.

5/ Will consumers get better advice... well lets look at that... .. theres an assumption that advisers advise on the highest commisison product and thats it. I am sure there has been some of that going on but as IFA's expend a lot of energy getting customers I am not convinced the whole industry has been advising badly just to get commissions.

Equally quite a large number of advisors work for groups (eg St james' place) and within these groups they get things like extra share options for recommending a certain groups products ( that isn't going to change) also very many advisors work for institutions that ONLY sell a limited range of products so their advice isn't going to change becasue it can't.

6/ Finally I suspect this move will mean huge swathes of the population don't take any advice ( which actually might be worse for them regarding things like wills, inheritance planning, life insurance etc) the reason being is that the advisor will sit down with them and they'll be looking at some stage for the customers to write them a pretty large cheque... many will balk at that and won't take action.

7/ The only reason this will help is that it will largely stop product providers from creating bad products whose sole purpose is to generate massive commissions through networks, the reason being that there won't now be the incentive to oversell these things. But I have to say that's a pretty small proportion of the products and concerns an even smaller area of advice.

So all in all I would call this very badly thought through indeed.

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And what about price comparison sites? They must take a bit of commission. I can't see them lasting long unless you get companies sponsoring these sites directly.

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And what about price comparison sites? They must take a bit of commission. I can't see them lasting long unless you get companies sponsoring these sites directly.

Apparently they often get it wrong too... ;)

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And what about price comparison sites? They must take a bit of commission. I can't see them lasting long unless you get companies sponsoring these sites directly.

Quite right to raise it.. and the plot thickens further when you look at this area. Currently the proposal only looks at investments (not those things covered by the common comparison sites eg Moneysupermarket)... but there are "investment" comparison type sites where you can buy un-advised etc... I suspect some of their income has previously come from commissions, perhaps some as well from arrangement fees.

And when you get further into it this raises further questions... the IFA or website can no longer get commissions for advised or non-advised sales... without the websites the product providers will have a difficult time ( and to be frank huge swathes of the population find them useful) so perhaps the product providers will introduce a set-up fee which they charge and then this is then paid to the "arranger" whether they be an IFA or a website.... I suspect there will still need to be some form of payment, it may no longer be called a commission but some new model will emerge and it wouldn't surprise me if the exact nature of getting rid of commissions hadn't been thought through properly by the FSA..... I still believe theres a fair chance consumers will end up getting a similar deal to that when comissions were paid and will have to pay fees on top, and that the nature of things will mean many do not go forward and take financial advice.

If they move on and do the same thing with mortgages and general insurance then it will be the death knell of the comparison systems .... while comparison systems are not really useful for mortgages they are for things like car insurance..... it would be counter productive for me to try and search for deals myself which I'd have to do if there were no comparisson engines which there won't be if payments from providers to sellers are not possible any more.

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Fee only - lol, a lot of (rather mediocre) advisers charge upwards of £100/hour if you want to do things by fees. Once it's fees only there will be a scramble to the bottom to get customers and it'll be a fraction of that at the end for those not catering to high net worth clients.

Also, IMO 95%+ arn't worth the money either as commission or fees as they just don't have the necessary knowledge or skills to keep track of the best investment opportunities.

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This in my view is one of the worst decisions the FSA has ever made on a number of counts.

So all in all I would call this very badly thought through indeed.

I think they should have their fees based on performance. That'd sort the men out from the boys.

Most of them are utterly useless and will remain utterly useless wether paid on commission or by the hour.

Its the usual VI spin trying to make out they are doing something when all they are actually trying to do is keep the gravy train going by another name.

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I think they should have their fees based on performance. That'd sort the men out from the boys.

Most of them are utterly useless and will remain utterly useless wether paid on commission or by the hour.

Its the usual VI spin trying to make out they are doing something when all they are actually trying to do is keep the gravy train going by another name.

I don't disagree with you regarding the calibre of the individuals involved... but the FSA thinks this is going to lead to better advice for consumers AND better value for consumers and in my view I just cannot see it happening.. it may very well get worse.

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I don't disagree with you regarding the calibre of the individuals involved... but the FSA thinks this is going to lead to better advice for consumers AND better value for consumers and in my view I just cannot see it happening.. it may very well get worse.

IFA's are supposed to be unbiased towards providers so I think it's a good thing. If you want a really good IFA look for someone who's always charged fees and then refunds the commission to the client.

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Why not make them all squeaky-clean public servants?

Yes it's a rhetorical question :rolleyes:

but then again ................

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IFA's are supposed to be unbiased towards providers so I think it's a good thing. If you want a really good IFA look for someone who's always charged fees and then refunds the commission to the client.

Thats worked for some people but now that commissions have been banished you won't get the "commission rebate" to offset the fee. Equally I am not convinced that IFA's who charged fees were independent... they could call themselves independent but in a quirk of the market they did not have to offer the deals that were available to everyone.... according to the FSA's rules you could call yourself independent if you charged a percentage fee (eg effectively the same as taking commission) and offered deals from only a small section of the market.

it was odd situation before and they in my view have made it even worse.

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