FSA looks at alternate adviser charging model

Issued: 17/06/2010 00:00:00

Prohibiting commission structures that incentivise mis-selling would help to clean up the industry, according to the Future of Banking Commission report

The report stated that there have been long-held concerns about the impact of remuneration structures in financial services and that consumer regulation needed to be more thorough to protect the end user of financial services.

The commission stated: "From 2013, the FSA will implement a new system of adviser charging, which will ban IFAs from receiving commission on sales of investment products. Banks will continue to be able to receive commission for selling other types of products, and to offer bonuses to staff based on the volume of sales. They will also be able to set sales targets and put pressure on frontline staff to meet them."

The report also recommended that regulation of the financial sector should be split into three distinct functions, each with a different remit - consumer protection regulation, prudential regulation and systemic risk regulation.

The report stated: "There should be a significantly different approach to regulating banks, to ensure there is enhanced competitive protection for the consumer and that the stability of the financial system is maintained without putting taxpayers at risk."

Ken Davy, founder and chairman of business support services firm for IFAs SimplyBiz, agreed that banks have been guilty of promoting doubtful investments to their clients, something that most IFAs have not done.

He said: "Payment protection insurance is an outstanding example of a financial product that was promoted long after the FSA and others flagged up its lack of value. The banks have followed their own rules and have failed to demonstrate any real interest or concern for the best interests for the client."

Keith Richards, group distribution and development director for Tenet Group, said: "If you consider that most of the major mis-selling problems over the past 13 years have been created by either life companies or banks - both being commercially-driven machines with short-term profit focus.

"However, it is too often advice that gets labelled as the problem, but it is actually the commission greedy, poorly qualified salesmen, who do not document the advice or sales process properly. Commission doesn't incentivise mis-selling, but there is no denying it can influence focus on more rewarding product lines and advice areas."

Kay Blair, vice-chairman of the Financial Services Consumer Panel, said: "We would much rather have bank staff concentrate on the quality of service they provide rather than pushing products which may not be in the customer's interest."

Source: Joy Dunbar, FinancialAdviser, 17th June 2010