James Daley: It's time to get rid of commission for good
Saturday 15 November 2008
Payment protection insurance has been giving the financial services industry a bad name for far too long. It's overpriced, hard to claim on, and is often completely inappropriate for the unsuspecting consumers who are sold it.
As of next year, thankfully, it will also become all but extinct. The Competition Commission has announced that lenders will no longer be allowed to sell PPI at the same time they sell a loan or credit card. Consumers will have to be given at least a fortnight to explore other options; if they do decide to buy PPI, the full cost and exclusions will have to be clearly explained to them.
While these measures will go a long way towards stubbing out the PPI mis-selling scandal of the past few years, they will not address one of the main reasons such an atrocious product is sold in such great volumes: commission. Bank employees and loan telesales staff are heavily incentivised to sell as many of these policies as they can – effectively encouraged to over-egg the benefits of PPI.
Sadly, similar practice is still common throughout the financial services industry – not just for insurance. Furthermore, when it comes to, say, the sale of an unsuitable investment product, the financial damage can be much greater than the losses from a mis-sold PPI policy – and may not become apparent to the consumer for many years.
Fortunately, this issue of commission bias has not been overlooked. The Financial Services Authority (FSA) is due to publish a report outlining a new set of rules for the sale of financial products.
Last time the regulator reformed the advice industry, almost a decade ago, it stopped short of clamping down on commission: its own research suggested that consumers preferred it to paying upfront fees for advice. Instead, it simply told financial advisers that they must offer customers the option of paying by fees as well as commission – an option that most customers continued to ignore.
As a result, commission bias is still as great a problem today as it was 10 years ago. Unit-linked insurance bonds, for example, have continued to be best sellers, even though customers can often buy the same funds contained in these bonds for much smaller fees elsewhere. It is, of course, no coincidence that the bonds pay much higher commission than the alternatives. Meanwhile, life insurance executives talk openly to investors about how they can manipulate their sales by hiking or reducing their commissions.
This has got to stop – and surely the most straightforward solution is to ban commission altogether. Consumers may say that they don't like this, but they'll surely adapt once they don't have a choice. Besides, there's no reason why fees can't be paid on an annual basis, in a similar fashion to commission. Financially, there's no need for it to leave consumers any worse off.
This is the FSA's chance to start making the financial advice sector work for its customers again, not just for itself. The reforms at the start of the decade did not go far enough. Being bold this time around could finally help to rebuild trust in the damaged financial services sector.
Will your credit card rewards be scrapped following new EU rules on charges?
Bargain Hunter: First Utility's Cosy deal lets you heat your home from anywhere
What would happen if you put a statistician in a casino with £1m?
Simon Read: 'The fight must go on over equality on expat pensions'
Pension freedoms: How to deal with cold calls from scammers
- 1 Top 20 misconceptions people believe are true
- 2 'We're not heroes, just tourists': Swedish police officers on holiday stop vicious assault on New York subway
- 3 Black Mass trailer: Johnny Depp might have started making good films again
- 4 Jacob Lescenski and Anthony Martinez: Straight student asks gay friend to High School prom and makes a million Twitter friends
- 5 Australian student Tommy Connolly, 23, adopts his pregnant, homeless 17-year-old cousin to give her a chance at 'a better life'
The sickening truth about food banks that the Tories don't want you to know
Katie Hopkins on LBC: Listen to caller taking The Sun columnist to task over migrant comments
Migrant boat disaster: Ukip candidate mocks victims in sickening Twitter post
Nigel Farage wants the BBC to stop making programmes like Doctor Who, Strictly Come Dancing, and Top Gear
Global warming: Scientists say temperatures could rise by 6C by 2100 and call for action ahead of UN meeting in Paris
Rupert Murdoch berated Sun journalists for not doing enough to attack Ed Miliband and stop him winning the general election
iJobs Money & Business
£50000 - £55000 per annum: Ashdown Group: Business Analyst - Financial Service...
£18000 - £23000 per annum + OTE £45K: SThree: At SThree, we like to be differe...
£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is the o...
£22000 - £24000 per annum: Recruitment Genius: This is an opportunity to join ...
Day In a Page
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B, subject to change of use permissions.
A former period coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, office, kennels and an outbuilding that's currently used as a gym.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This four-bedroom detached home comes with a double carport, useful workshop, garden and two walkways that offer views of the adjacent countryside.
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
This four-bedroom home has exposed brick chimneys and a vaulted ceiling in a breakfast room that's ideal for summer entertaining - the doors open to the patio and garden.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
This five-bedroom home is arranged over three floors of a converted Victorian hospital, offering spectacular views of the Pentland Hills - only three miles from the city centre.
This four-bedroom detached home comes with grounds that span to approximately 2.5 acres, as well as two large patio areas and a double garage.
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
A boutique mews house, set around a central courtyard, with three bedrooms and a private roof terrace
A four-bedroom farm-conversion with three bathrooms and two reception rooms