D(epolarisation) Day: what might have been
From 1st June all financial advisers must spell out whether they are independent agents or tied to one or more product manufacturers and what and how they get paid.
It’s the last step in the FSA’s ‘depolarisation’ programme and a much watered down version of its original plan to make the adviser/salesman distinction clearer and prevent commission bias. How watered down is demonstrated by the belief in the industry it need make no effective difference to how you run your business. Fee options, instead of commissions, will become more widespread but hardly any consumers will be able to work out from the charges ‘menu’ how much commissions will really cost them over the long term, or what other contingent costs they will have to pay by choosing commissions instead of the fee option.
Compare this with what happened in the USA in the 1980s, when a very public feud developed between fee and commission firms. Fee-charging firms were able to differentiate themselves clearly from commission-driven salesmen. By staking out the moral high ground, ‘professional’ advisers ended up with the largest market share. Breaking the hold that commissions give product manufacturers over distributors led to lower product costs and higher financial planning standards. It could have been so different here on 1st June – poles apart, even.