Markets outside the UK, some of which are unregulated, will not directly be affected by the RDR. However, the Association of International Life Offices (Ailo) has asked Acuity Consultants to conduct a consultation exercise on remuneration with advisers on an impartial basis.
Acuity is an independent strategy and research consultancy specialising in the cross-border life sector since 2001. Bryan Low, director of Acuity, says: “We are conducting around 25 face-to-face interviews across March, April and May with the CEOs/MDs of key international (non-UK) adviser firms located in Hong Kong, Singapore, Dubai and Europe.
“The research will cover adviser remuneration as part of a broader agenda looking at how international advisory businesses will respond to the increasing pace of regulatory change in the international market in which they operate.
“We are looking to build an understanding of how advisers believe these regulatory changes will impact their businesses and the strategies they will adopt to ensure they continue to thrive.”
One such company that has been visited by Ailo is AES International in the UK. Sam Instone, managing director, says Ailo has researched different types of charging structures and is exploring ways of having less upfront commission and how the market will respond to such moves.
The crux of the matter, he adds, is how will advisers feel about providers bringing remuneration more in line with the UK. “In the international environment the commission is not disclosed to the adviser or client, in the majority of cases.”
In some cases, gross commission of as much as 8% is being paid to the firm with half of that, or less, going to the adviser. Instone points out most international advisers are not qualified or regulated and probably not taxed.
Instone says the Ailo consultation comes at a time when the offshore life industry is concerned that it is getting a bad name. The industry feels something has got to be done as the client is being badly served and their image offshore is the opposite to its squeaky-clean UK image. They also want to find a system were the life companies are not trumping each other with higher commissions just to get the business.
“Some advisory companies will think it is a good idea, some will not. But a lot will dig their heels in and refuse to sell products with lower returns. It is a case of who will blink first. This is just a consultation and I think it will take a long time to get anything changed, I don’t expect anything concrete to come out of it,” says Instone.
He thinks it will take the involvement of regulators to get things changed and many countries do not have financial regulators and countries make a lot of money out of the current system.
Some of the big life companies have pulled out of this grey market and will not deal with unregulated companies, while others show no signs of giving up the commission-based model.
Saunderson House provides personal financial and investment advice in the City [of London] and charges on an hourly-rate fee basis.
Nick Fletcher, chief executive, says his company has been rebating trail commission since 1994 and advises on more than £1.75bn of funds.
He says his observations of advice given in unregulated markets are based on situations where people have come to his company for help, having previously been advised overseas by financial intermediaries.
“In most markets advisers are remunerated on the basis of the commissions they earn on product sales. In some overseas situations we have come across, clients have been advised to invest in long-term savings and life plans where commissions seem to have been paid that are far in excess of the value added,” he says.
“It is often the case that terms, conditions and technical details are not communicated, as there is frequently no obligation to provide clear and substantiated recommendations."
He is critical of the quality of advisers as in many overseas economies no minimum level of training or investment qualification is required.
So it looks as though change is coming but no time soon. As always education is key, and in this case it may be the clients who need it most to avoid advice that may not be in their best interest.
The full version of this article will appear in April’s International Adviser
