In the merry-go-round that is retail financial services, we are led to believe that we may see the re-emergence of commission within retail selling of financial products. The usual cheerleaders for and against have already begun setting out their stalls, sometimes with care and consideration but also, rather sadly, sometimes not.
The regulator, quite rightly in my opinion, has been quick to play down the potential for a complete rolling back of the key RDR principle by removing the commission ban, but has stated that it would consider a limited return of some element of commission if appropriate.
Conspiracy theorists
It is worth mentioning here that commission did not in fact actually completely disappear as it is still available on basic protection products, for instance.
Much is being made of the fact that the shelving of the review into banking culture and the discussion of the potential return of commissions have both come to light at about the same time by the usual conspiracy theorists.
This is a bit disingenuous as the review into retail financial advice has much wider aims and objectives and is not just about commissions. As for a review of culture within banks, I have some sympathy with the regulators here as where on earth would you actually start with that particular Gordian knot?
As for my own opinion on the return of commissions, I may somewhat surprise those who know me and Investment Quorum. Despite dealing with mass-affluent and high net-worth clients and having been largely fee-based long before the introduction of RDR, I think, upon reflection, that I would welcome the return of some form of transparent payment at the simpler end of advice albeit in a limited form. In reality it never really fully went away in any case.
I say this because I am fully aware there are millions of UK households that do not have more than £25,000 net wealth at their disposal. These households absolutely do not need highly qualified, sophisticated wealth management and investment advice.
Nor should they really be contemplating the levels of fees associated with this type of advice. Arguably, they should be con- centrating on protection and savings and pretty much avoiding risk-based investment portfolios until they manage to grow their savings somewhat.
Mind the gap
We might all be chartered or certified and love our cashflow modelling and our risk- graded portfolios and centralised investment propositions, which are cognisant of modern portfolio theory and efficient frontiers. But the section of the society currently disenfranchised from advice and affected by the ‘savings gap’ simply do not need this level of advice or sophistication.
However, as I mentioned what they do need is good basic advice and nudging on protecting their incomes and families, budgeting and some form of regular savings through pensions and auto-enrolment, and possibly through a non-pension vehicle.
