As a reminder from the FSA: “One of the principal aims of the Retail Distribution Review is to allow consumers to have confidence that the advice they receive is in their best interests and that advisers are not simply recommending providers which pay the highest commission.”
The only way this can be done is if there is zero payment between the product manufacturer and the product distributor and this is essentially what the FSA is introducing.
Lights, camera…
However, as of last week, the European Commission has decided that payments to investors from the fund providers are acceptable.
Given its remit, funds domiciled outside the UK – most significantly and voluminously in Luxembourg and Dublin – would be able to pay rebate/commission back to the investor while FSA-regulated, and therefore UK-domiciled funds, would not.
In many cases, a ruling from the European Commission is seen as a green light for something similar happening in the UK. But in this case, it will not.
The FSA has confirmed to me that “it has no intention of backing down on the banning of commission”.
It has worked closely with the European authorities over the past six years, more than just keeping them informed of what is happening with RDR. As the UK regulator it will stand squarely behind its commission position for the UK investment industry, with one of its arguments being that what works for a highly intermediated industry over here may not work everywhere else, and what works in a continental environment won’t necessarily be best practice over here.
…action
To emphasise its stance, the FSA is clamping down on those companies finding ways round the commission ban (reviving what sounds like the ‘marketing allowances’ that life companies used to be able to pay/get away with).
It has recently written to the chief executives of 24 product provider and advisory firms “outlining our concerns that firms may be looking to ‘work around’ the adviser charging rules by soliciting or providing payments or benefits”.
It says: “We want to ensure a level playing field where firms can compete upon the basis of the service they provide to their clients; not the deals they have in place with product providers.”
If anyone is looking for a way round commission payments and as of last week is expecting to be bailed out by a ruling from Europe trumping the ruling from the UK, then I’m afraid you are very much misguided.
