The sales boom in investment bonds is raising questions about the Financial Services Authority's intended clampdown on high commission payments.

The sales boom in investment bonds is raising questions about the Financial Services Authority's intended clampdown on high commission payments.

The FSA will this month deliver its final proposals for outlawing commission and replacing it with "customer agreed remuneration", as well as preventing bank salesmen from calling themselves financial advisers.

But the product most associated with high commission levels, the investment bond, has been enjoying booming sales for insurers desperate to maintain their sales in falling stock markets.

Prudential has reported a 174% rise in sales of with-profits bonds in the first nine months of 2008 compared with 2007, while Norwich Union posted a 51% rise in sales. Legal & General said that although with-profits savings overall were down by 17%, bond sales were up 186% year-on-year.

This week Aegon, whose leader Otto Thoresen is in support of industry reform, defended a 9% commission on investment bonds as being "in line with the principles" of the FSA's review.

Aegon was commenting on criticism by wealth adviser Towry Law, which has been campaigning for the scrapping of commissions.

Andrew Fisher, chief executive of Towry Law, had seized on a statement by Norwich Union that it was cutting typical commission rates by 1% to 6.8% because they were unsustainable. Fisher said it was "further evidence that the current system, where most financial advisers are remunerated by product providers for selling their products, is broken".

Yet Aegon has recently lifted the maximum commission on its investment bonds to the same 9% which, as The Herald highlighted last year, is offered to advisers by Zurich for selling its pension products.

Aegon said: "The product offers a range of charging and commission options to allow advisers greater flexibility to agree commission and charges with customers. For example, customers can choose, with their advisers, whether to pay for the bond through an initial charge, a five-year charge or over the course of the bond.

"The commission structure varies accordingly. Advisers can choose to give up commission which will reduce the level of charges for customers, or increase the investment allocation. Advisers can take up to 9% initial commission but typically take less, with around 7% on average."

Aegon concluded: "This type of flexible approach is in line with the principles of customer agreed remuneration, which is one of the main proposals of the retail distribution review."

Zurich said last year it was "helping those advisers who wish to make the transition to a fee-based business model, whilst at the same time supporting those advisers that still want to receive commission".

Steven Forbes, managing director of independent advisers Alan Steel Asset Management, said his firm had always set a maximum 3% on commissions for bonds or unit trusts.

He added: "The problem the FSA have is that the paperwork they put out is so confusing that the client has no idea what he should be looking at - it should simply be a piece of paper which says we are getting x'. But insurance company reps tell us that at many adviser firms the first question is what is the commission?'"

Norwich Union this week said it was suspending dealings with 100 firms for persistent churning - the creation of unnecessary sales - of products.

Forbes commented that in one infamous Edinburgh case, a modest pension had been switched to new companies so many times that it had created £14m of "new" business.

One industry insider told The Herald that although Norwich Union had cut its "typical" commission on with-profits bonds to 6.8%, it was still able to offer higher levels. But he added: "There has been a noticeable trend in the last 12 months of IFAs moving to a new business model."

Standard Life this week cut the pay-out on its maturing five-year bond from £14,684 three months ago to £12,060, a drop of 18%, and increased the maximum exit penalty from 6.4% to 22% - the same level as at Norwich Union and Legal & General.