UK’s Financial Conduct Authority (FCA) criticised for considering the return of commission sales
The interim head of the FCA, Tracey McDermott, has been criticised by financial reform campaigners for mooting a return to the days of financial products being pushed by commission-driven sales staff.
Christophe Nijdam, secretary general of Finance Watch, said the move on commissions could be dangerous: “Consumers must know if they are dealing with an adviser or a sales person. Any adviser whose business model is overly dependent on a single product supplier – for example, because of commission payments – cannot give advice in the best interests of their clients.”
In an interview with BBC Radio 4’s Money Box programme earlier this month, Ms McDermott said she “wouldn’t rule out” allowing the retail industry to sell products on a commission basis again, even though banks have been hit with tens of millions in fines for mis-selling investments and insurance to the public during the boom years.
Critics said it was the latest example of a regulator apparently disregarding the painful lessons of recent years.
“This is dragging us back 10 years. The FCA might as well not exist the way things are going,” said John Mann, MP, a member of the Treasury Select Committee.
Richard Lloyd, executive director of the consumer group Which?, said: “The FCA appears to be sending conflicting signals. It has acknowledged the damaging role commission in financial advice has played in the past, and yet won’t rule out allowing its return. No one wishing to restore trust in financial services should want a return to the days when commission was hidden and incentivised mis-selling.”
Ms McDermott, who this month ruled herself out as a candidate to take over the FCA chief executive job on a permanent basis, told the BBC’s Money Box she has set up an “expert panel” to consider whether to allow commission-based selling of investment products again.
In 2014 the FCA introduced a set of regulatory changes known as the Retail Distribution Review (RDR). This insisted that financial advisers charge retail clients upfront fees for their services, rather than accepting sales commissions from product providers. The logic was that commissions created an incentive for mis-selling.
Earlier this month, Santander said it would return to face-to-face UK retail investment advice – three years after it was fined £12.4m fine by the FCA for mis-selling that was linked to commissions.
In 2013 Lloyds was fined £28m by the FCA for mis-selling. Documents published by the watchdog revealed staff were earning points for each policy or investment they sold, and could be automatically promoted or demoted based on their sales performance. Such was the pressure that one adviser sold insurance to himself and his wife.
In her BBC interview Ms McDermott hit back at the claim the FCA had been pressured into easing up on the banks in the wake of the sacking of its tough former chief, Martin Wheatley, in July. “We’re not going soft on the banks,” she said. “We’re not being told what to do by the Government. ”
At Intelligent Investments, we share the belief that commission leads to a basis in financial advice. We have welcomed not only a move away, but a complete ban on commission based financial advice in developed markets such as the UK following RDR, and feel it is long overdue in international markets such as in South East Asia. Whilst local regulators in Hong Kong, and Singapore continue to flounder to follow suit, and have only recently required a disclosure of commission, we pride ourselves on providing independent, professional advice on a management fee basis, with complete transparency and disclosure of all fees and charges.