Watchdog uncovers widespread ignorance about commission fees
Nearly half of people who have consulted a financial adviser were unaware they were paying for the service, according to City watchdogs.
A survey of more than 2,000 people for the Financial Services Authority found that 49 per cent of those who had received financial advice were unaware they faced a potentially hefty fee through commission payments to their adviser after buying a financial product.
Just under a third (29 per cent) of UK consumers surveyed understood that they would pay a fee for financial advice, while a third (33 per cent) who do not currently receive financial advice thought that it came free.
The survey was carried out a matter of days before the practice of charging customers through commission is due to be outlawed under the regulator's Retail Distribution Review (RDR) in what will be the most far-reaching reform to the way financial services are sold in a generation. It comes into force on 1 January.
Under the reforms, financial sales people will have to agree a fee in advance with their clients after a fact-finding process, although consumers will be able to pay over time through any financial product they buy for the advice they receive if they cannot afford a high upfront charge.
Watchdogs hope the change will eliminate a widespread misconception that "advice" comes free and encourage consumers to shop around for better prices.
The FSA said: "In response to the survey's finding the FSA has put the record straight by pointing out that advice has never been free. Consumers have always paid for the advice they receive, but they often didn't understand the mechanism through which they paid for it."
Watchdogs have been concerned that advisers have in the past used payments through commission to steer customers to products which paid them the most, rather than what was in the best interests of clients.
It has been feared that the policy of chasing sales and paying "advisers" through commission linked to those sales has played a role in a string of scandals, including the mis-selling of personal pensions, endowment mortgages and split capital investment trusts by financial advisers.
It is hoped that the RDR could eliminate future episodes banning commissions outright.
Industry reaction to the changes has been mixed. Some firms believe it could ultimately provide them with opportunities.
Phil Loney, the chief executive of the mutual insurer Royal London, said he welcomed the elimination of "commission bias" from sales of financial products. But he said: "I am worried that under the current legislative framework it is difficult for the consumer to get access to financial advice."
- 1 Nigel Farage: Me vs Russell Brand on Question Time – he's got the chest hair but where are his ideas?
- 2 Harry Potter fans can apply to the Hogwarts-inspired College of Wizardry
- 3 Jessica Chambers: 19-year-old woman 'doused with lighter fluid and burned alive' in the US
- 4 Russell Brand calls Nigel Farage 'poundshop Enoch Powell' in BBC Question Time debate
- 5 Orange Wednesdays are no more
Weather bomb in pictures: Storms cuts power for tens of thousands – and snow is on the way
Jessica Chambers: 19-year-old woman 'doused with lighter fluid and burned alive' in the US
Russell Brand calls Nigel Farage 'poundshop Enoch Powell' in BBC Question Time debate
Russell Brand was rendered speechless on Question Time by this man
Fury at Airbus after it hints the super-jumbo may be mothballed
Disgruntled RBS worker writes hilarious open letter to Russell Brand after anti-capitalist publicity stunt leaves him hungry
Nigel Farage defends Kerry Smith 'ch***y' comment: 'If you are going for a Chinese, what do you say you’re going for?'
Nigel Farage's approval rating hits 'record low' as popularity suffers in wake of Ukip sex scandal
Pakistan school attack live: Taliban kill at least 132 children in 'horrifying' massacre
Sony hack: Angelina Jolie branded 'seriously out of her mind' in further embarrassing leaked email saga
Panic Saturday: 13 million Britons spend £1.2bn – while 13 million others across the country live in poverty unable to afford food
iJobs Money & Business
$200 - $350 per annum: Carlton Senior Appointments: Managing Producer Office...
$125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...
Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...
Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...