Chief Executive at FEIFA / FECIF Secretary General
Transparency not commission is the real key for 2017 and beyond
A number of industry commentators keep stating that it’s now all about the end of commission on a global basis – but is it, really? We all know of the switch to fees in the UK, and also a small number of other locations around the world, but certain other jurisdictions have also been quoted as moving in that direction, only for regulators in those countries to avoid such an approach.
Let’s take South Africa for instance. Many have reported that it’s “RDR” is due to commence this year – but, on its own, this terminology is misleading. I have even read some commentaries stating that commission will be banned, when it seems quite plain to me that the regulator there (the FSB) is moving towards capping commission levels, which is somewhat different of course.
Others have pointed to the “ban” of commission across the UAE, only for the Chief Executive of the Dubai Financial Services Authority (DFSA) to state categorically that it believes there is no need to take such a step there. It is true that the Dubai Insurance Authority recently announced such a ban, but it already looks as if the “immediate” nature of that may actually be a couple of years down the line.
So, what is my point here – why does this matter?
It’s not about commission it’s about transparency
If we are not careful, the debate about whether commission will be banned or not may cloud the most important aspects of our changing world. For advisers and intermediaries in most of the so-called developed world, the focus should be ensuring that their business models are robust and workable in an environment where remuneration is transparent (whether commissions or fees).
I have been asked to speak at a number of conferences across Europe in recent years, almost always on the lessons to be learned across the EU from the effects of RDR in the UK. Whilst obviously we can learn from that particular development, for much of the rest of Europe it is the UK’s switch to commission disclosure in the 1990s where we should perhaps look for our first lessons.
Not all markets are equal
Having now spent a number of years getting to know and understand European domestic markets far better than ever before, one thing strikes me as much if not more than any other: the financial industries and the advisory sectors in each of these countries are different and, perhaps most importantly, at very different stages in their development. Regulators appear to be increasingly aware of this fact, in Europe and beyond, and there is a growing appreciation that what has happened elsewhere, such as RDR in the UK, may not be right for their jurisdiction, particularly at this stage in its lifecycle.
Don’t believe everything that you read
Look past the headlines – these are often quotes from industry “commentators” making strong statements that are possibly driven by a simple desire to gain media coverage. Ensure that you also take on board the substance of what is really happening. And realise that the debate about commission bans, or not, is often not where we should be entirely focused at this stage.
It’s about Transparency
Transparency of remuneration is, in itself, the clichéd “game-changer” for 2017 and the foreseeable future, as far as advisers and intermediaries in most countries are concerned.
I should add that I am not advocating commissions over fees – or vice versa. I am just trying to ensure that our sector focuses on the key aspects, at the right time.
Focus on putting the client at the centre of everything you do, and deliver value for the significant benefits that you can and should provide to them. Always “Do the Right Thing”, as was highlighted at a conference I spoke at last week – and by that what was meant was to do right by the client of course, not the adviser or product provider. Then you can take transparency in your stride. And if a commission ban comes to your town, at a later stage, you will then also be best placed to cope with it - and perhaps both clients and you can benefit from that too.