Keith Richards: When is commission not commission?

The advice profession has evolved post-RDR and continues to gain positive recognition for the key role it plays. As a professional body we would not be in favour of a return to commission of old and this view is clearly shared by many across the advice sector. I equally doubt commission would appeal to most providers, given how capital intense and uneconomical it was.

So why, all of a sudden, is it back on the agenda? Have we simply misinterpreted the FCA’s recent comments on the matter and the key underlying reason why it is open to consider advice fee options?

Three years after RDR forced a change to fee-based advice (or, to be more specific, abolished the factoring of commission into investment products) it is permissible for transparent adviser fees to be facilitated via the provider or platform as a client option.

So why is it that the Financial Advice Market Review is giving rise to speculation that some form of commission may be reintroduced? Quite simply, it is not. However, the FCA is open to exploring options to recover a transparent advice fee from regular premiums, in particular for consumers who want to save but may be put off seeking advice because of up-front fees.

In order to best serve the interests of a wider segment of consumers, the review is considering the introduction of a lower cost, “simplified” regulated advice solution, which will also include the option for advice fees to be recovered over an agreed period of time from the premium – possibly called a “client agreed advice fee”.

Vertically integrated firms are already well-placed to operate such a system in a post-RDR environment, as recovery is easier to administer, but development to improve consumer options and access should be open to all models.

The inclusion of transparent CAAF would increase the options available for the public to pay for advice, reduce barriers to engagement and be capable of working equally well for full advice. More importantly, it can be implemented today, does not conflict with RDR Conduct of Business rules and would not therefore be commission.

Keith Richards is chief executive of the Personal Finance Society