A shake up for financial advisers and financial advice is on the way according to proposals published yesterday by the financial services watchdog – the Financial Services Authority (FSA).
Independent or Sales Advice
One of the key proposals is to distinguish between independent financial advice and sales advice so that consumers are clear about what type of service they are receiving.
Independent financial advice is where a financial adviser can recommend products from any provider across the whole market in order to choose the one that best suits your needs.
Sales advice will be where firms recommend the products of just one provider, or a limited range of providers (currently called ‘tied’ advice).
Raising professional standards
The proposals also cover what qualifications financial advisers have and will set a new minimum qualification for different types of advice. A new Professional Standards Board will also be established.
Paying for financial advice
Independent financial advisers will be required to agree the cost of financial advice with their customers up-front, which should remove the possibility of commission-bias and ensure that the cost of all advice is clear to consumers whenever it is given. We believe the same principles should be applied to sales advice.
Which? personal finance campaigner Dominic Lindley said: ‘We need to put the ‘independent’ back into IFA. There has to be a clear distinction between those offering unbiased advice and those simply trying to sell products. It must be made crystal clear to consumers what type of service they are receiving and how they are paying for it.
Consumers expect their advisers to be properly qualified so the proposals for higher professional standards are a step in the right direction.
Any new ‘sales advice’ process must offer value for money products and sufficient consumer protection. Given that only 32 per cent of bank advisers met our benchmarks for giving good advice there must be no weakening of the regulatory requirements in this sector.’
Which? advice on financial advice
In general the new proposals look like good news, but all the proposed changes aren’t expected to be fully implemented until 2012.
In the meantime advice from Which? is to choose an independent financial adviser and make sure you have the conversation about how much the advice is going to cost upfront. Also look for a specialist, depending on what type of financial advice you need.
Find out more about choosing a financial adviser here.
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