The Financial Services Authority (FSA) has published new rules that will prevent financial advisers from earning commission when they sell retail investment products to consumers.
The FSA says its new regulations, due to come into force from the end of 2012, will ‘remove commission bias’ by banning companies from accepting cash in return for recommending specific products.
It is also hoped the rules will help ‘restore consumer confidence’ in a market that has been the subject of several mis-selling scandals.
Independent financial advice
The changes announced by the FSA form part of the Retail Distribution Review (RDR), which aims to revolutionise the financial advice sector by requiring consumers to pay a stated fee for the advice they receive. While this will not necessarily have to be paid up-front, the FSA says it will prevent advice firms from ‘hiding the cost of their advice’ behind the cost of the products they sell.
Currently, advisers can offer an ostensibly ‘free’ service by loading the cost of advice onto the price of financial products, or making money by advising clients to invest in certain funds or insurance policies.
After the new rules come into force, financial advisers will have to make clear to customers the true cost of product recommendations.
Firms offering independent financial advice will also have to demonstrate that their recommendations are based on a comprehensive and unbiased analysis of the market, and that any product selection is made in their clients’ best interests.
Which? personal finance campaigner Tori Watson said: ‘We very much support the FSA’s move to separate out the cost of financial advice from the cost of financial products. Which? believes this could serve to overcome some of the suspicion many consumers feel towards financial advisers.
‘However, the FSA’s new rules need to go further to prevent biased selling of financial products by banks.
‘We’ll be working with the FSA to ensure they help consumers understand the implications of accepting ‘restricted’ financial advice from a bank that may have vested interests in the financial products people buy.’
For more information on how to find a trustworthy independent financial adviser, check out the free Which? guide to Choosing a financial adviser.
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