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The FSA has issued an 'emerging risk' warning on investment advice firms which it says may seek to maximise recurring income before the RDR deadline next year.
It views providers as potentially driving the risk of consumer detriment by offering large commissions to adviser firms in the run-up to the RDR to increase market share.
Such behaviour could result in "unnecessary churn in the retail investment market and excessive costs for consumers", the FSA says in its first Retail Conduct Risk Outlook.
Exiting firms, whose owners are hunting for a buyer in a market which may become flooded with sellers, are also flagged up as an emerging risk to consumers.
Owners could seek to increase income through selling significant amounts of commission-based products in an attempt to build up their book and increase the attractiveness of the firm, the FSA says.
"Other firms may look to increase the amount of trail commission on their books, as a way of cushioning the removal of commission on new business carried out post-implementation at the end of 2012," it says.
Amid its red-flag warning on transitioning advice firms, the FSA paper states high commission levels do not always mean poor value for customers.
But it adds high amounts of commission "can, with other factors, be responsible for commission-driven selling".
It says its own research has shown particularly high levels of commission paid on investment bonds and it has heightened its supervisory vigilance in this area in response.
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What do you mean ..."in the run up to the RDR"
... this 'flog and churn' mentality has been going on for years, so why the sudden focus of attention from the dopes at Canary Wharf Fraser Brydon points this out quite correctly ...beggers belief we have such overpaid and over-rated pesonnel spending our money as regulators
Posted by: Roger
Beware the obvious
I really worry about the intelectual competence of the FSA Collective. For example: "Owners could seek to increase income through selling siginificant amounts of commission based products". If that has not been one of their prime objectives, alongside their clients best interests, since inception, they should not be in business! "Other firms may look to increase the amount of trail commission......as a way of cushioning the removal of {initial} commission". Obviously, anyone in business who sees one source of income reducing will seek to increase income from other sources! And, despite no legal obligation, it is a basic commercial fact that if you want to keep those contracts on your books you need to keep the client happy! The FSA should recognise that RDR has the potential to cause many of the problems it seeks to avoid, and remind firms that clients should be treated fairly*, which means that charges & fees (both initial and ongoing, even if commenced before RDR)should be proportionate to actual costs incurred in providing a service of value to the client. *(remember TCF - once promoted as the solution to all problems? The FSA seem to have concluded it, indeed all 22 years of regulation, has failed. Otherwise why would we need RDR to stop commission bias and ensure clients receive suitably competent advice?)
Posted by: IN View
BEGGARS BELIEF
The FSA have managed to reach new levels of incompetency. Frightening. Anyway, how many FSA members does it take to change a light bulb? Answer: None for the minute, because beforehand there is an obvious requirement for 500 consultations, then 250 communications, by which time it will be January 2013 and they can nick replacement light bulbs from all the empty IFA offices.
Posted by: Keith Jayne
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no surprises there..
this has been happening for years, why the increase in vigilance now? Had the FSA been active and doing their job correctly then it should have been stamped long ago. Part of the issues which created the RDR was the high commissions offered and taken by the greedy - the FSA should have stopped the insuance companies grabbing market share yet they sat back and ignored it. Impose a max comission agreement now, why not? Stop this nonesense now.
Posted by: Fraser Brydon - IFA