Bringing back commission would be a massively retrograde step for the industry.
Since 1988 the concept of ‘salesman’ in our industry has been outlawed and replaced by the concept of adviser, so the responsibility for choosing a suitable product falls on the adviser, not the customer.
It is however still possible for customers to purchase investments by direct offer but then no adviser is involved i.e. if an individual is involved in the sale he takes responsibility for suitability.
Advice is a very complex, time-consuming and expensive process and it is no wonder that there is an ‘advice gap’ as an awful lot of people really can’t afford or don’t choose to pay for advice.
But to close that gap by moving back to commission is clearly nonsense unless the regulators allow the concept of “salesmen” to be re-introduced.
Then the responsibility for suitability and product choice falls back on the customer.
You really can’t have someone working for one party, the customer, but paid by another party, the product provider as is the case with the advice relationship – the conflicts are enormous and cannot be overcome.
And how is it possible to buy a product remotely but not through an individual?
Why was it that salesmen were banned in 1988?
The answer must lie in the complexity of the products we manufacture and the potential for misrepresentation and hard-selling when the powers that be decided to place the responsibility for product choice on those that were doing the selling and to give them responsibility for suitability.
I would argue that the changes introduced in 1988 have actually worked and an awful lot of the bad practices and rogues that were around at the time were quickly forced out of the industry and customers have generally got a better deal.
If you want to see the practices that were common pre-1988 just watch The Wolf of Wall Street.
But that still leaves an awful lot of people caught in the so-called advice gap and how do we resolve that?
First, ‘advice gap’ is misleading – these people will never be able or willing to pay for proper advice.
The problem is that many do not save for the long term, that’s all. If they do not want to pay for advice then they either buy remotely or through a salesman.
Here are some ideas – reintroduce the ‘salesman’ who is paid by commission and who can only sell the products for one provider so that there can be no conflict there; ban the salesman from selling unregulated products and prosecute those that try to hide what is actually happening inside a product (usually lawyers and actuaries).
