City watchdogs faced criticism last night after yet another attempt to overhaul the UK's rules on independent financial advice.
The Financial Services Authority is to overhaul the different classifications of financial advisers in an attempt to combat widespread consumer mistrust, but has rejected calls for an outright ban on commission payments.
Consumer groups have argued that any financial adviser who charges clients sales commissions, rather than a fee for his time, could be biased towards product providers that pay the highest rate of commission.
However, the FSA said an outright ban on commission was impossible due to "legal and practical barriers". Instead, independent financial advisers (IFAs) will have to charge using a process known as "customer agreed remuneration". The charge will be a fee rather than a commission, but advisers will be able to go on charging commissions which would then be deducted from the fee.
The FSA's Retail Distribution Review (RDR) also proposes changing the way the financial advice market is organised.
Under the current structure, financial advisers are either independent, advising on the whole market, multi-tied agents who sell products from a panel of financial services providers, or tied agents, only offering products from one company. In future, advisers will only be allowed to offer sales-linked advice or independent advice, while consumers will also be given access to a free Money Guidance service run in conjunction with the Government which is currently being piloted.
Jon Pain, managing director of retail markets at the FSA, said: "The RDR proposals provide a golden opportunity to regain consumer confidence and trust in the financial services industry. The reforms are wide-ranging and will be challenging for the industry, but they also present significant opportunities for firms and individuals to modernise practices, raise standards and treat customers fairly."
But critics of the plans believe the changes will only add to the confusion. Chris Cumming, director general of the Association of Independent Financial Advisers, said: "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.
"We are disappointed the FSA has thrown away the clarity of the proposals made in the interim report, which received the support of leading consumer groups and the IFA profession."Reuse content