Commission payments in financial services will be banned in the United Kingdom (UK), the Netherlands and Australia in the next year. Today the results of the study “Towards a fairer deal for consumers and the financial industry” are published. The objective of this study is to shed light on the rationale for such a drastic regulatory overhaul, to analyse the anticipated impacts of the ban on the financial industry and consumers and to draw lessons from this intervention. In so doing, the UK Retail Distribution Review is analysed in a case study, and experiences from other EU and non-EU countries as well as the academic literature is reviewed.
The study concludes: The commission-based advice model is broken. Attempts to address the commission-bias with disclosure do not work. A ban of commissions will stir a new level of competition for product and advice quality. Potential negative impacts on consumers can be mitigated. The fee-only advice model will eradicate the current inherent conflict of interest in financial advice.
In sum, a system change in the financial industry is needed to address its malfunctioning and it will lead to more fairness. This change will have benefits both for the financial sector and consumers. That such a change is undertaken in Great Britain with the support of the financial industry and consumer organizations should be regarded as an encouraging signal.