Commission Could Make Come Back

Commission Could Make Come Back.

Whilst listening to the BBC's Money Box programme on Saturday, the directors heard an interview with Tracey McDermott, the acting chief executive of the UK financial services regulator, the Financial Conduct Authority (FCA), she suggested that the regulator was open to a return of commissions being paid on regulated pensions, investments and life insurance products.

Many of you will be aware that whilst this website has always quoted set fees, new rules started in 2013 requiring all financial advisers to quote fees in writing when offering advice on pensions and investments. This was known as the Retail Distribution Review (RDR). In addition, financial advisers were required to have higher level qualifications.

As predicted by us in emails to the Treasury Select Committee (TSC), many banking groups and larger insurers closed their financial advisory businesses as a direct result of fees and higher qualification requirements for advisers. In addition, we also predicted that there would be a "financial advice gap" whereby people with lower incomes or lower disposable cash would not be able to afford to seek professional financial advice.

Ms McDermott suggested in her interview that whilst the regulator would not make a 'U-turn' on RDR it is now considering the removal of the ban on commission payments for investment related products.

What is driving this?

Many financial advisers and larger banks and insurance company institutions are developing lower cost advice models such as ‘Robo financial advice'. This has now given rise to a new review of the market by the financial regulator called the Financial Advice Markets Review (FAMR). We suspect that commissions will be reintroduced to allow lower cost, automated guidance and financial advice models to prosper thereby giving access to financial guidance to the mass consumer market yet allow financial groups to earn at least some commission for providing the service.

Comment

Not surprisingly some banking groups have started to revisit their service offerings and are recruiting financial advisers. If only both the regulator and the TSC had listened to us a few years ago perhaps millions would have been saved and more consumers would still be engaged with their finances. That said, we expect any new commissions basis to be restricted.