Watchdog attacks FSA's plans to shake up financial advice

The Consumers Association (CA) yesterday launched the strongest attack yet on the Financial Service Authority's (FSA's) proposals to reform the retail sale of financial products.

Sheila McKechnie, the CA's director, said: "These reforms appear to be in the interest of the major banks and insurers and not the millions of us that need a fair and affordable system of advice. We urge the regulator to go back to the drawing board and think again."

In January the FSA proposed to scrap the 14-year-old "polarisation" system, under which financial products are either sold by independent financial advisers or tied agents employed by banks, fund managers and insurance companies. Tied agents can sell only their employer's products.

The FSA wants agents to be able to widen their range by selling the products of several companies – the so-called multi-tie – while advisers would be able to call themselves independent only if they charge fees and do not receive commission from providers.

But CA, the biggest privately financed group lobbying for consumers, claimed dogma had driven the FSA to propose reforms that would make products dearer, make advice worse and increase confusion. Instead it wants to go back to the pre-1988 system of having advisers paid by fixed commissions. Its response states: "Banks and tied advisers should be required to sell products which suit consumer needs, not their own commercial needs. The term 'financial adviser' or 'planner' should only apply to truly impartial financial advisers. All others should only be allowed to call themselves 'salespeople.'"

Ms McKechnie added: "The FSA set out to create a system that would encourage consumers to make long-term savings, but has ended up with something that is more likely to convince consumers to do nothing at all. At a time when the Government is looking increasingly to consumers to provide for their financial futures these proposals constitute a major risk to financial consumer welfare."

An FSA spokesman said: "Our aim is to encourage better competition and advice for consumers, and we would hope that CA would support that. But we will read their paper and consider any constructive suggestions that they make."

The FSA intends to publish draft rules in the summer, for which there will be consultation until the autumn.