Finding an independent financial adviser (IFA) you can trust is hard enough without worrying about how much that advice is going to cost.
Many consumers aren't prepared to pay a fee, which can run to hundreds of pounds for mortgage or pension advice, so they go instead to an adviser charging commission for recommending a product. But this raises a con- cern over how independent that guidance actually is. If advisers get £500 for selling one policy and £800 for another, how many would recommend the first product even if it was the best choice for you?
However, the uncertainty surrounding the cost of financial advice may become less of an issue if new proposals outlined by the Financial Services Authority (FSA) last week are introduced.
These address the lack of transparency in the current pricing structure used by advisers. Many consumers find it isn't clear how much they will have to pay - if the adviser charges a fee - or how much he receives in commission. And it also isn't clear how these costs compare with the prices charged by competing advisers. The hope is that, with more information at their disposal, customers will become wary of receiving commission-driven advice and choose to pay a fee instead for completely independent guidance.
Under current rules, advisers have to disclose to the client in cash terms how much they get in commission for selling a product. But FSA research shows that customers are still not clear how much this financial advice is costing them.
Under the new proposals, advisers would have to provide all clients with a guide, or "menu", explaining that different firms offer customers different ways of meeting the cost of the advice given - fees or commission - and stating whether that adviser offers a choice. If the firm offers the option of paying a fee, the menu should state what it is. And where commission is taken, the maximum the adviser would make on a typical range of transactions should also be spelt out.
Most importantly perhaps, the menu will include a break- down of how the commission charged by an adviser compares with the market average. This should make it easier for people to compare costs and shop around for the best deal - as long as they make the effort to read through the guide.
"We want to arm consumers with information giving them a better understan- ding that the cost of advice can vary between firms and that different options exist for meeting the cost of advice," says David Severn, head of retail projects at the FSA.
This latest consultation is the final part of a package of proposals from the FSA reforming the way advice is given. Under current rules, an adviser can either be independent and recommend any product and any company on the market, or be tied and sell just one company's products.
Under the new rules, which are set to be introduced next year, this distinction will be dropped, increasing the range of products that any one adviser can sell. Customers will be able to walk into any high-street bank and buy products from a panel of providers - not just the bank's own mortgage, pension or life insurance - so giving more choice.
But David Elms, chief executive of IFA Promotion, warns that people will still need to be told if there are any restrictions on the adviser. "It's essential that enough thought and resources are put into consumer education so people can recognise the types of advice they will be offered."
- More about: