People who seek professional investment advice could soon be told exactly how their adviser is paid by providers, as part of a proposal for reform from the financial watchdog.
The Financial Services Authority (FSA) says consumers do not have enough confidence and trust in the firms they take financial advice from because commission and fees are not transparent enough. It wants to see financial advisers agree the cost of advice upfront with customers, removing the possibility of commission-bias.
The proposal also calls for a greater distinction between independent advice and sales advice, where the products sold are tied to a particular provider. For more imformation on how advisers are paid, read our guide to getting financial advice.
Jon Pain, managing director of the FSA’s retail markets division, says the proposals provide a “golden opportunity” to regain consumer confidence and trust in the financial services industry.
“Consumers need help more than ever with their financial decisions, whether planning for retirement, saving for the future or dealing with current financial pressures,” he adds. “We believe there has never been a better time to foster more confidence in the industry and provide consumers with real help and advice to empower them to use savings and investments products more often.”
The Association of British Insurers (ABI) says the proposals will benefit consumers by removing sales bias.
Stephen Haddrill, director general of the ABI, says: “[The proposal] is a positive and significant milestone in the reform of financial advice and is very good news for consumers. Moving away from the commission model of remuneration for independent financial advisers will eliminate any bias, or perception of bias, towards particular products.
“This means that consumers can have absolute confidence that the products recommended to them are best for them, not their IFA.”
And Andrew Fisher, chief executive of wealth adviser firm, Towry Law, says radical improvement is needed to fix the “broken” investment advice sector.
He adds: “For the first time, the cost of commission-based advice will be explicit and be clearly deducted from clients’ investments.”
However, Julie Patterson, director of funds and tax at the Investment Managements Association (IMA), is concerned that the distinction between independent advice and sales advice is confusing for some consumers.
Chris Cummings, director general of Association of Independent Financial Advisers, agrees. He argues that allowing insurers and banks to call their sales people "advisers" gives the impression that they are actually offering advice to people, rather than selling their their own products.
“The term ‘sales adviser’ only muddies the water still further and will leave many consumers none the wiser about the type of service they are receiving," he explains. "The FSA should have taken this opportunity to clearly differentiate advice from sales. It has not done this clearly enough - the sales advice term is ambiguous and it will further confuse consumers about who they are dealing with."