This debate has become somewhat emotionally charged with some industry personalities taking positions in their respective ‘camps’. The regulator has been keen to drive (in some cases ‘drag’) up professional standards in the industry for many years and I believe that it has been pretty successful. They would like advisers to be seen on an equal professional footing as Accountants and Solicitors. As such, they would also like to see their remuneration being obtained in a similar way – namely fees.
The objective has merit; higher professional standards AND standing are good for the industry and the clients. Having been involved in regulating advisers, I also generally support the use of fees. Fees are (or should be) transparent and should remove or reduce the potential for a product bias sale. Whilst, there are advisers who would claim not to be biased by commission remuneration, there is no doubt that it does have an effect.
The problem is what are the most appropriate types of fees? Are percentages of funds, such as seen on Wrap platforms really fees or commission by another name? With CAR (or CARIS), does it matter? The difficulties with funds based fees, are that there is still the possibility that there is a vested interest in the sale of the funds (or associated Wrap/Supermarket service). There is an argument that the percentage approach encourages a degree of active management or advice, though the counter can be that there is‘drag’ on the future fund performance of the adviser’s remuneration.
What about the people who cannot afford fees amounting to hundreds of pounds an hour? There seems to be a recognition that there will be a lower/middle market that could be excluded if commission based remuneration is removed. There is talk that tied provider based sales forces could be the answer. The reality is that the effect of commission on the value of a products benefit are hidden or blurred in the mind of the consumer. Added to which the quality of the advice may also limit choice and long term value too.
Ultimately, I expect that the industry will once again fail to agree on a single approach. However, there will continue to be a gradual move for many truly independent professional advisers to adopt the fees based approach. At the same time, it is likely that some form of commission will continue, not least of all because there will still be members of the public who will only transact business if they do not have to make an explicit up front payment.
