Research by Skandia has revealed that the majority of IFAs intend to shift away from commission-based remuneration over the next three years.

From IFAonline.co.uk:

The firm says the proportion of intermediaries selecting the fund-based fee option on its capital and income bond product has doubled from 22% in 2005 to 44% last year. Meanwhile, the average level of initial commission selected by advisers on the product fell from 5.4% in 2005 to 4.5% in 2007.

Skandia research, based on responses from more than 500 advisers, supports this trend away from initial commission. Only 43% expect income from initial commission by 2010, with 37% from trail and 18% from fees.

The provider says this represents a huge difference from the current market as suggested in the study, which shows that 59% of advisers’ remuneration comes from initial, 26% from trail and 12% from fees.

Skandia says the move away from initial commission shows advisers are increasingly looking to move away from standalone product sales and towards an ongoing review and financial planning service, with the cost to the client spread over time in line with the service provided.

It says its research suggests the majority of advisers review a client’s portfolio at least once or twice a year, indicating that this business model is becoming increasingly commonplace.

Jeremey Mugridge, Skandia bond products marketing manager, says: “Reducing their reliance on initial commission and building up ongoing commission or fee revenue streams can help advisers ensure the remuneration they receive is in line with the service they provide to their clients whilst building long term value into their businesses at the same time.

“Our research shows that advisers are already making the transition away from initial commission and the FSA’s Customer Agreed Remuneration (CAR) work is likely to further the trend towards ongoing commission or fees.”