Tan Kin Lian's Blog: UK ban on commission to take effect from 2013

Saturday, March 27, 2010

UK ban on commission to take effect from 2013

http://www.citywire.co.uk/personal/-/blogs/money-blog/content.aspx?ID=390639&re=8931&ea=138574

Is it right to ban financial advisers from taking commission?
By Tony Bonsignore 26 March 2010

The Financial Services Authority today finally banned financial advisers from taking commission on investment products such as ISAs, pensions, life insurance and the like

The move has been on the cards for a couple of years, and follows a major regulatory review of the sector. But still it is likely to come as a shock to those old-school advisers who pick up a tasty commission for every product they flog.

Certain voices within the advice industry have long argued that forcing consumers to pay upfront will deter them from seeking financial advice together. Others, meanwhile, argue that the FSA has no business intervening in the market in this way.

Other observers, though, note the way ‘independent’ advisers are swayed in their recommendations by the amount of commission they earn, both in the products they pick and the providers they choose.

They also remember a wave of outrageous mis-selling scandals within the sector, from personal pensions to endowments in the 80s and 90s to precipice bonds and split capital investment trusts in the noughties.

Commission-based advisers cannot but help but be biased, they say, and for that reason they should be banned.

The regulator obviously agrees.

From the end of 2012, firms will have to be upfront about how much they charge for their services, and no longer hide the cost of their advice behind the cost of a product, an FSA statement said

‘In addition, firms will not be able to accept commission in return for recommending specific products. Consumers will know what they are buying upfront, how much it will cost them and also have the peace of mind that it was recommended to suit their needs.‘

Firms offering independent advice will now have to demonstrate their recommendations are based on ‘a comprehensive and unbiased analysis of the market and that any product selection is made in their clients’ best interests,’ it added.

As for those who are unable or unwilling to pay for financial advice, the cost of the advice can be bundled with the product; however it must be clear exactly how much is being charged for advice.

‘It is vital that consumers know not only the cost of financial advice, but also its value,’ Sheila Nicoll of the FSA says.

‘There is a need to reconnect the adviser and client, where one pays for the services of another, and without the distraction of commission. Only then can consumers have real confidence and trust in the advice they are receiving.’

So what do you think, then, has the FSA made the right decision? Will it boost demand for financial advice or reduce it? Does commission have any place in modern retail financial services? And will it stop the next mis-selling scandal?

9 comments:

Anonymous said...: Australia is banning commission this year and I wonder when is MAS banning it although it has said that they are watching other jurisdictions.
Consumers must understand that fee is NOT on top of a commission becuase by that time all insurance and investment products are free of commission.
It is advantageous to consumers to pay fee and not only it is transparent but fee might be lower than paying commission and you get more advice.
Eg..if you buy a wholelife you pay 40% or 50% of the annual premium in the 1st years , 25% 2nd year and 12% for next 4-6 years and for some insurers 5% for the life of the policy.
If your premium is $2000 , they add up a lot But for fee it may be a one time fee to be agreed between both parties and advisory fee for few years to be decided by both parties.
You see, everything is transparent and predictable and you know what you get rather than commission base products which you don't even know why you pay the premium.
You now also know why the wholelife product is expensive and the return is miserably low and your agents are silent on this.
I hope consumers will clamour for MAS to make this change quickly before you kenna conned and conned by your trusted insurance agents whom are maybe your friend. You will now know the so called friends you have been keeping all this time and who have been appearing very "professional" and caring but actually a big conman or women without conscience.They are like the silent thief .
The 't' of these 'awards' mdrt , cot and tot stands for thief and these people are considered successful and you now know why they are successful, right?; March 27, 2010 1:07 PM
Anonymous said...: MAS should do likewise and stop wasting time. Give the industry a lead time of 2 years to change and to come up their own model of remuneration which is free from conflict of interest and abuse by insurance agents.
To further safeguard the consumers the need based must be enforced and no product advice option is allowed.
The industry record is still very bad since FNA and the CEDLI was introduced in year 2000. Despite 10 years on the record is very poor. For last year 2009 only 59% did full or partial fact find and it was said to be consistent for some years already.The 59% needs to be discounted because many of these fact finds are fake, fabricated or just phoney to cheat the clients into buying bigger policies.Fact find is supposed to be done before a product is 'sold' but it is done AFTER the sale . This is ridiculous and borders on conmanship.So it is sad that MAS is unaware.Is MAS an ostrich?
Maybe need based and financail planning is a slower process of making money fast albeit a more ethical and correct approach.
MAS must force fact finding and need analysis and more importantly the reasonable basis requirement under section 27 of the FAA to be complied with.
A lead time of 2 years is a reasonable time frame for the industry to come up with a model that is fair to the consumers and to stop abuse by insurance agents.
In other jurisdictions they also are pressing for tertiary qualification for financial planning or finance to be the minimum entry requirement which MAS must consider too for the long term. Currently the tikam tikam exams and qualification are fit for salesmen only and are far very far from adequate as financial advisers or experts in insurance and investment planning.
To raise the standard as a profession it must not allow prostitution of their trade by insurance agents who have long brought disrepute to the trade.Some even commented that it is full of agents prostituting themselves as can be seen at roadshows, malls and in the mrt. Uk banned this long time ago and called this hawking and US called it street walking no different from street walkers hookers(prostitutes).
They even banned calling or prospecting during working days have time restriction to call your clients to talk about insurance.Sunday is a day no insurance agent or adviser is allowed to call their clients for business. It is supposed to be a day of rest and family life.
We haven't had all these restrictions or we have but never enforced by the regulator who is sleeping all the time or is on vacation.Wake up ... another debacle is waiting to happen and this time right in the insurance industry because policyholders will wake up too to realise that they have been conned all these years.Their action will cause a run on the insurance companies and the agents will be hauled up to court for mis-selling and conflict of interest etc. etc.; March 27, 2010 2:36 PM
Anonymous said...: FSA has definitely made the right decision to ban commission from all insurance and investment products.
Its role is to protect consumers and NOT the insurance agents, the RMs and the financial advisers, right?
It will affect business of the insurance companies for sure because no more anyhow sell and conning their unwary customers.
No more daylight robbing to enrich the coffer of the insurance companies.No more easy come money and no easy go money spent at Siloso beach wine and dine.
Ask yourself, does the insurance industry exist for the consumers or for the the companies and the agents to get rich and to become #1 and to qualify for mdrt and overseas trips?
Definitely not just for consumers but for the sellers too on a win-win-win basis and not for some agents or the companies to splurge on themselves with the consumers' premium and bonus.
Mis-selling or unethical practices are not unique to UK or Australia or US, Singapore is even worse. Consumers suffer in silence, in ignorance, in fear, don't want to report their own relatives or friend's agents doesn't mean Singapore has no share of it. In this blog you can read of disgruntled policyholders, aggrieved investors, blur consumers and so forth.This measure is to nip the root of the evil in the bud or butt and commission is the evil of all mis-selling , malpractices and conflict of interest.
We welcome the change for the good.
MAS, what is there to wait?; March 27, 2010 6:37 PM
Anonymous said...: Those agents who committed mis-selling in the past better beg their clients for forgiveness or pray hard that the mis-selling is not discovered becuase the long arm of the law will get them even to their grave.; March 27, 2010 8:21 PM
Vincent Teo said...: Even if MAS ban commission, are you sure that the insurance company will return the commission to their customer by selling cheaper?

Most probably they will continue to roll out the same rubbish and keep the commission saved to themselves. So now their CEO, management, staff can now have more incentive trip to exotic locations, more bikini parties, more luxury office furniture for themselves.

Banning commission is just one of the many steps in protecting the consumer. More careful evaluation of the product will also play an important part.; March 27, 2010 8:36 PM
Anonymous said...: Vincent Teo March 27, 2010 8:36 PM,

when commission is removed it means the products are stripped off of the commission like in US they are known as no load insurance... the premium will drop by at least 30%.
Over long term consumers will gain in term of better return and more quality advice and not just recieve form filling service and other craps like you hear form insurance agents like filing your claim as if without them the insurers won't pay.
Removing commission should eradicate unethical selling and conflict of interest coupled with safeguards like complying section 27 .
I bet incentive trips will be history becuase this social enterprise business will drop drastically .Product pushing will be banned too and this company their agents are well known as pushers although disguised as financial consultants.; March 28, 2010 12:28 AM
Anonymous said...: I feel that the property agents should be stripped of commission as well. The scams, cheats and lies that they come up with are no different.

Financial institutions come under the purview of MAS. What about property firms such as Propnex?; March 28, 2010 10:54 PM
Anonymous said...: MAS must ban commission quickly. There are already insurance agents talking about making as much money as they can before the ban. I am sure what they mean is they want to fleece or rob the customers before they have no more chance. MAS must act and warn them of the consequences if they resort to unlawful means and they cannot escape even they are not in the industry.
What does this tell you? The insurance agents have been doing unethical things all these times.
All the more the reason to ban commission. Not only that also make sure they conduct need analysis and ensure their recommendations are of reasonable basis in compliance with section 27 of the FAA. If they should fail
to meet this requirement the agents should be charged and the sentence to depend on the gravity of the misconduct..
I beleive before the ban malpractices will be on the rise.Consumers must be wary of them and report any thing that is amiss. Your cooperation is necessary to rid the industry of rogue and incompetent agents.; March 29, 2010 8:06 PM
Anonymous said...: if ban then who wants sell insurance?; May 08, 2010 6:22 PM