So a little background information – from January 2013, a new regime comes into being where commissions are being banned on retail investment contracts. We will live in a fee charging world. The benefit of this is the charge for the service is clear and transparent – the concern Lord Flight raises is around advice and affordability.
He voices the opinion questioning – are commissions actually bad? Clearly whatever source of remuneration, full disclosure is needed and as such is this ban appropriate. It seems that the concept of a commission ban has been declined in most countries – rather maybe the issue is in the explanation and presentation?
Personally, I understand the worries raised on both sides – the point being I have seen equally severe misappropriation of remuneration through both fees and commissions. The problem does not lie with the remuneration but rather the person taking payment. This is the world in which I give advice but I am a great believer of agreeing a remuneration structure, agree the service to be provided and duration for the remuneration and provide it as agreed – not rocket science.
I think the failure is more around people not being aware of the remuneration and the service provided is not proportionate to the remuneration received.
Lord Flight
A Conservative Peer, Lord Flight, has criticised fellow politicians for failing to question the Retail Distribution Review (RDR) commission ban and warned of the unintended consequences.
He said: “Generally, I think people in both the Commons and Lords don’t really understand the issues and are quite willing to accept a moral judgment that commission is a bad thing.
“What I think is particularly mistaken is that quite a lot of the well-intentioned consumer lobby are too elitist to understand the unintended side of things.”
Lord Flight also reiterated the points made in his letter about the direction legislators are heading from in Europe, with the EU now likely to rule out a commission ban. The European Parliament’s Committee on Economic and Monetary Affairs (Econ) has removed all references to such a ban in amendments to the draft of the revised markets in financial instruments directive (Mifid). A proposed Europe-wide ban on commission payments to independent financial advisers is expected to be rejected by the European parliament in a vote next week.
“What is wrong with full commission disclosure commission arrangements being required and having individual signed agreements?
“It’s interesting to note that this is what the normally crackpot EU has opted for.”
Meanwhile, the peer, who is also an adviser to the Tax Incentivised Savings Association board, raised another problem with the RDR commission ban.
“It would be a disgrace if non-advice intermediaries weren’t bound by the commission rules,” he said.
“It’s almost better for people to have no advice rather than end up going to non-advice intermediaries, most of whom would be the main banks, who have had the worst track records in terms of stuffing them with bad products.”
