Perhaps in light of the recent financial turmoil, more people around the world are waking up to the fact that many financial advisors are salespeople since many are paid based on commissions. This leads to a structural bias in the system that not all can rise above. Different products pay different amounts of commissions and a loose rule of thumb is that the riskier the investment, the juicier the commission.
UK To Ban Commissions to Financial Advisors
Earlier this year in June, it was reported that the Financial Services Authority (FSA) in the United Kingdom had decided that commissions to financial advisors would be flat out banned starting in 2012.
The FSA has published a consultation paper on the Retail Distribution Review (RDR), which as its name indicates, reviews the retail distribution of financial products and services. The proposals for change are listed here and you can download the Retail Distribution Review paper by clicking here.
This has been all the buzz lately when chatting to people in the industry because now that a precedent has been set, will other countries follow?
Australian CFPs May Not Be Allowed To Accept Trailing Commissions
I read an article by Mark Noble yesterday titled, Australian CFPs Forced To Abandon Trailers, in which he explains that members of the association which is responsible for giving out the Certified Financial Planner designation (CFP) in Australia will no longer be allowed to collect trailing commissions from product providers if they wish to maintain their CFP designation.