In comments made on the BBC Radio 4’s Money Box programme earlier this month; McDermott refuted suggestions that the financial regulator would backtrack on the retail distribution review (RDR), but did not rule out a limited reintroduction of commission payments for certain retail products.
“We do not want to go back to a world where we had the same problems we had pre-RDR. What we do want to look at is the best way to deliver advice and guidance across the market?” McDermott said.
“I wouldn’t rule out that there would be some element of commission, but we are not going to reverse RDR.”
Huge step backwards
For Anthony Morrow, founder and chief executive of eVestor, any talk of returning to commissions is a “huge step backwards and shows a complete lack of innovation by the industry”.
“Coming after the recent shelving of the inquiry into banking behaviour, a return to commission would be another example of the FCA protecting the “great and good” instead of consumers; prioritising the short-term profit requirements of providers instead of long-term consumer benefits,” Morrow said.
For Tom McPhail, head of retirement policy at Hargreaves Lansdown, a return to commission is not a realistic possibility: “It would be contrary to the direction of travel of the RDR.”
Direction change
Talk of a potential return to limited commissions will most likely be shelved following the announcement on Monday that the FCA has finally found a permanent chief executive in the Prudential Regulation Authority’s (PRA) Andrew Bailey.
Bailey will take to the helm in July 2016, after the budget and after the publication of the financial advice markets review (FAMR), both scheduled for March.
With its credibility questioned, after the regulator halted its investigation into banking culture, the FCA will no doubt welcome the opportunity to refresh its public image with the appointment of its new chief executive.
Bring clients back
As for finding the best way to deliver guidance to the market, “the first people you should try to bring back into advice are the people who used to take it,” said Garry Heath, founder of advisers association Libertatum.
“We’ve lost around 12 million clients who used to pay commission, but who don’t seem to be able to, or want to, pay upfront fees. We need to find a way to bring them back into the financial advice space.”
Heath has suggested reintroducing a variation of the now-defunct Lautro fixed commissions scale; and enabling clients to avoid paying a lump sum for advice and instead breaking it down into manageable amounts spread over a period of time.
As for returning to commission payments: “The old system is dead,” said Heath. “At least from a perceptions point of view, if nothing else.”
