UK hit with fallout from ban on embedded comp.

UK hit with fallout from ban on embedded comp.

UK hit with fallout from ban on embedded comp. The UK has only now sussed out what advisors in Canada have known for months -- a ban on embedded commission hurts clients.

The UK’s Financial Conduct Authority (FCA) recently announced that it was establishing the Financial Advice Market Review (FAMR) to examine how ditching embedded comp has limited access to advice for those most in need of it.

This "experiment (of eliminating embedded comp.) has inevitably resulted in rising advice costs, reduced adviser numbers and a significant reduction in the delivery of financial advice,” Richard Bishop, a practicing financial advisor in the UK and Coventry University College lecturer, writes in a scathing op-ed in the Financial Times. “The FCA has proven to be a very expensive way of delivering regulation in the UK; it may be the case that the implementation of the FAMR requires a new regulator, not a new regulatory approach.”

That desire to hold the regulator accountable for unintended consequences of dropping embedded commissions is growing following a FCA post-implementation review of its commission reforms in December 2014. It found that the cost of advice has increased but the FCA has yet to comment on the total impact including the value delivered as a result of the changes. 

Regardless, opponents of the reforms believe there’s an “advice gap” that’s come to pass as a result of the various changes implemented 32 months ago including the elimination of embedded commissions.

However, Toronto economist and former UK advisor Andrew Teasdale sees the UK reforms as having unfolded exactly as it should be.

“Access to ‘advice’ has never really been the major problem, in my opinion. Access to cost effective simple solutions has been, especially for the many smaller investors,” Teasdale wrote in an email to WP. “We have the technology and ability to deliver the RDR, this is just a natural progression, and history is littered with the revolts of those displaced by progress.”
7 Comments
  • Peter 2015-09-03 10:02:11 AM
    Perhaps all these so called regulators should come out of their insulated ivory towers and work in the field for a few years on commissions to see what advisors really do day to day and the ridiculous volumes of regulations that we are required to comply with.
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  • Harley Lockhart CLU CHFC 2015-09-03 2:28:17 PM
    While "Access to 'advice' has never really been the major problem..." it should definitely be an overwhelming priority for any regulatory change.

    The most important constituent "of those displaced by progress" are investors, not advisors. It makes no sense to me that so much focus is directed toward the impact of change on advisors rather than where it should, on the investors.
    Note that the vast majority of investors are "smaller investors". Any regulatory change not focused on them, but instead caters to "higher net worth", "mass affluent", etc. is misdirected at best.
    The establishment of FAMR to examine how banning commissions has impacted access to advice is a step in the right direction, albeit far too late in the process. Let's hope FAMR stays true to its mandate regardless of inevitable pressure to justify changes already made.
    In Canada, it would be unconscionable to have the CSA make any move to replicate the UK experience until a superior transition experience for ALL investors is included.
    Would the leaders of the ban commissions movement place themselves in a position of accountability? Perhaps an irrevocable commitment to relinquish (without any golden handshake) their position(s) if unintended consequences demonstrate their inadequate leadership should be integral to their job description.
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  • Andrew 2015-09-04 12:58:13 PM
    I believe that part of our annual registration fee goes to pay for the regulators' salary. Perhaps they should also be accountable for the decisions they make and how it impacts the investors (esp. the smaller investors)
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