UK finds ban on adviser commissions hurts clients

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UK pundits have said a ban on embedded commissions for advisers has hurt clients.

The UK’s Financial Conduct Authority (FCA) recently announced that it was establishing the Financial Advice Market Review (FAMR) to examine how ditching embedded comp has limited access to advice for those most in need of it.

This "experiment (of eliminating embedded comp.) has inevitably resulted in rising advice costs, reduced adviser numbers and a significant reduction in the delivery of financial advice,” Richard Bishop, a practicing financial advisor in the UK and Coventry University College lecturer, writes in a scathing op-ed in the Financial Times. “The FCA has proven to be a very expensive way of delivering regulation in the UK; it may be the case that the implementation of the FAMR requires a new regulator, not a new regulatory approach.”

That desire to hold the regulator accountable for unintended consequences of dropping embedded commissions is growing following a FCA post-implementation review of its commission reforms in December 2014. It found that the cost of advice has increased but the FCA has yet to comment on the total impact including the value delivered as a result of the changes.

Regardless, opponents of the reforms believe there’s an “advice gap” that’s come to pass as a result of the various changes implemented 32 months ago including the elimination of embedded commissions.

However, Toronto economist and former UK adviser Andrew Teasdale sees the UK reforms as having unfolded exactly as it should be.

“Access to ‘advice’ has never really been the major problem, in my opinion. Access to cost effective simple solutions has been, especially for the many smaller investors,” Teasdale wrote in an email to WP. “We have the technology and ability to deliver the RDR, this is just a natural progression, and history is littered with the revolts of those displaced by progress.”
  • The Naked Adviser on 4/09/2015 2:55:13 PM

    I hope Frydenberg gets this article but I doubt his ex FSC Treasury Adviser will pass it on. Trowbridge is looking forward to attacking the New Zealanders next. What a joke.

  • Dave , Perth on 4/09/2015 12:52:22 PM

    Its a pity that when you have the opportunity to look into the future of what something will be because it has been done already. Yet here they expect a different outcome, all I can say to the so called regulators is put your glasses back on because your vision is very blurred. Come and step in our shoes please?

  • Matt on 4/09/2015 10:38:29 AM

    The impact of FOFA has already had the same impact of increasing the cost of advice to those who can afford it against the original intent to give wider access to advice. But if anyone thinks the regulators or policitians who concocted FOFA will ever be held accountable they are wrong it will again be advisers who are deemed to be just "greedy" not actually keeping their business afloat.

  • Crystal Ball on 4/09/2015 10:28:17 AM

    So the UK has proven what we know is going to happen here.

    This was clear after giving the new Trowbridge insurance changes just 5 minutes of thought, that:

    1. Removal of upfront commissions places a high upfront cost on the clients
    2. Clients will not pay this
    3. Clients don’t get appropriate insurance
    4. Levels of under insurance increase
    5. Advisers go out of business
    6. Clients are worse off, small business advisers are worse off... but big insurance companies profit.

    But hey, despite that being the obvious and unavoidable outcome of these ‘improvements’, the big insurance providers get to pocket some good short term money, so that makes it all ok, right? Right?

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