Independent Financial Advisers (Regulation)

Justin Tomlinson Excerpts

Monday 29th November 2010 Commons Chamber

[Mark Garnier]

My hon. Friend will not be at all surprised to hear that there are a number of surveys. Which? Undertook a survey that showed that 85% of people would prefer to pay fees, yet a survey by Harris Interactive showed that only 6% of the public said they would be happy to pay fees as opposed to commissions. That is a big problem, I think.

In future, customers will need to agree a fee with their adviser. That means that no longer will a client pay for advice via a commission charged on a transaction.

[Justin Tomlinson (North Swindon) (Con)]

I congratulate my hon. Friend on securing this excellent debate. Does he agree that if it is believed that commission makes advisers more inclined to promote products with higher commission, the same would surely apply to banks that offer their staff product sales incentives? Should changes not be consistent across the sector?

[Mark Garnier]

Yes, they should, and it is fair to say that the FSA is looking at the whole sector.

At the moment, every client is given the option of paying for their advice via a fee or commission. Since 1991, every client of every IFA has been given full details in writing of the adviser’s commission, and the overwhelming majority of clients elect to pay by commission. During that period, the market share of the IFA sector has increased from 29% to more than 65%—based on commission charging—with consumers demonstrating a clear understanding of and preference for independent financial advice. It should be noted that independent advice is not the preserve of the wealthy. Some 60% of IFA clients are ranked as C1 or below. If consumers are forced to pay a fee for advice, it is inevitable that many who would benefit from independent advice will not seek it, resulting in only the well-off accessing a significantly reduced IFA sector. The subject of commissions is extensive and I am sure that many hon. Members will want to expand on it in their speeches.