Delivering quality investment advice isn’t just a question of the appropriate compensation structure, a variety of reforms are needed to ensure the quality of advice, says a report from Deutsche Bank Research. It argues that both commission and fee-based remuneration structures should continue to be allowed in order to meet the needs of different sorts of clients. However, it acknowledges that reforms are necessary. For example, it says a ban on commissions won’t solve all forms of mis-selling. While a commission ban would solve the issue of mis-selling due to the payment of trailer fees that influence product recommendations, it maintains that there are still other forms of bad advice that are not due to the method of remuneration such as improper investor classification or improper assessment of product features. It recommends that having “unconditional transparency” on remuneration payments flowing from a product maker to an advisor would allow both models to exist.
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