Financial advisers handed commission ban

FINANCIAL advisers are to be banned from accepting commission from providers for selling their products, the City watchdog announced yesterday.

The new rules are aimed at removing the commission bias at the root of mis-selling complaints where advisers have been accused of recommending products on the basis of the commission they earned for doing so.

From the end of 2012 product providers will no longer be able to pay commission to advisers for recommending their investment and pensions products, under the Financial Services Authority (FSA) rules. The guidelines, which do not apply to mortgages and insurance, are part of the Retail Distribution Review (RDR).

The FSA said its rules would ensure advisers were upfront about how much they charge for their services, with advice costs no longer hidden. . Advisers will have to show that advice is based on impartial analysis of the market and firms limiting their product range to certain investments or strategies will have to make it clear that their services are restricted.

Adam Phillips, chairman of the Financial Services Consumer Panel, which has lobbied for the end of commission for several years, welcomed the move.

"At last, the distortion created by commission will be removed from investment advice," he said.

"The FSA has stuck to its guns, and really has acted to protect consumers and improve the system. Once the new rules are in place, independent advice will have to be truly independent."

Some advisers, however, warn stamping out commission payments will limit access to advice for lower income consumers.