The interim head of the Financial Conduct Authority (FCA), Tracey McDermott, has been criticised by financial reform campaigners for mooting a return to the days of financial products being pushed by commission-driven sales staff.
In an interview at the weekend, Ms McDermott said she “wouldn’t rule out” allowing the retail industry to sell products on a commission basis again, even though banks have been hit with tens of millions in fines for mis-selling investments and insurance to the public during the boom years.
Critics said it was the latest example of a regulator apparently disregarding the painful lessons of recent years.
Christophe Nijdam, secretary general of Finance Watch, said the move on commissions could be dangerous: “Consumers must know if they are dealing with an adviser or a sales person. Any adviser whose business model is overly dependent on a single product supplier – for example, because of commission payments – cannot give advice in the best interests of their clients.”
“This is dragging us back 10 years. The FCA might as well not exist the way things are going,” said John Mann, MP, a member of the Treasury Select Committee, who is meeting Ms McDermott privately today to express his concerns.
Richard Lloyd, executive director of the consumer group Which?, said: “The FCA appears to be sending conflicting signals. It has acknowledged the damaging role commission in financial advice has played in the past, and yet won’t rule out allowing its return. No one wishing to restore trust in financial services should want a return to the days when commission was hidden and incentivised mis-selling.”
Ms McDermott, who last week ruled herself out as a candidate to take over the FCA chief executive job on a permanent basis, told the BBC’s Money Box she has set up an “expert panel” to consider whether to allow commission-based selling of investment products again.
In 2014 the FCA introduced a set of regulatory changes known as the Retail Distribution Review. This insisted that financial advisers charge retail clients upfront fees for their services, rather than accepting sales commissions from product providers. The logic was that commissions created an incentive for mis-selling.
“We do not want to go back to a world where we had... problems,” said Ms McDermott. “What we do want to look at is actually what is the best way of delivering advice and guidance across the market, so I wouldn’t rule out that there may be some element of commission. But we are not going to reverse the Retail Distribution Review.”
Last week Santander said it would return to face-to-face UK retail investment advice – three years after it was fined £12.4m fine by the FCA for mis-selling that was linked to commissions.
In 2013 Lloyds was fined £28m by the FCA for mis-selling. Documents published by the watchdog revealed staff were earning points for each policy or investment they sold, and could be automatically promoted or demoted based on their sales performance. Such was the pressure that one adviser sold insurance to himself and his wife.
In her BBC interview Ms McDermott hit back at the claim the FCA had been pressured into easing up on the banks in the wake of the sacking of its tough former chief, Martin Wheatley, in July. “We’re not going soft on the banks,” she said. “We’re not being told what to do by the Government. ”
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