Consumers to benefit as watchdog unveils radical overhaul of financial advice system

Published on Friday 28 November 2008 19:37

THIS week's report on the future of financial advice was a fantastic result for people looking for unbiased professional guidance.

Most importantly, the Financial Services Authority (FSA) proposed more stringent measures for financial advisers to be classified as providing "independent advice", as opposed to "sales advice".

This will help people understand if they are truly receiving independent advice that is in their best interests.

In its Retail Distribution Review, the FSA also recognised that the current qualification hurdles to becoming a financial adviser are too low, and it is recommending the adoption of a new benchmark equivalent to the first year of a degree course.

This is a positive step and will give consumers more confidence in the capabilities of those advising them.

However, a staggering 79 per cent of advisers have not yet achieved the proposed "Level 4" benchmark, and the evidence is that the majority of these are not currently taking steps to address this. These advisers will either need to get out the study books or start looking for a new career.

The FSA has recognised that consumers need to have far greater clarity over how they pay for advice.

While not explicitly banning commissions, the FSA has effectively taken that step by proposing that any adviser remuneration is agreed with the client and, where the payment comes from a product provider, it is deducted from the amount invested.

So, if an adviser wants to sell a 100,000 investment bond and wants to take commission of 7 per cent, they need to explain to the client that there will be just 93,000 remaining in their bond.

This will greatly empower consumers because how many people are going to opt to pay 7,000 for an hour or two of advice to buy an investment bond?

The financial advice industry is now on a path from commission-based product sales, made in the interests of the adviser, to truly independent fee-based financial advice.

This is fantastic news for consumers.

• Andrew Fisher is chief executive of Towry Law.