FSA calls for an end to adviser commission deals
The UK Financial Services Authority has outlined plans to ban commission payments from product providers and force financial advisers to agree fee payments with clients upfront, as the regulator looks to rebuild "trust and confidence in the retail investment market".
The FSA has issued a consultation paper on its Retail Distribution Review, with a closing date for comment of October 30 this year. The FSA plans to publish a policy statement containing its final rules in the first quarter of 2010.
The changes, which are due to take effect from the end of 2012, include new rules on commission payments which require advisers to agree payments with clients up front, while commission payments from product providers have been banned.
The FSA said: "We propose that adviser firms should only be paid for the advice and related services that they provide through ‘adviser charges’. By this, we mean that adviser firms should be paid by charges that are set out up-front and agreed with their clients, rather than by commissions set by product providers to secure distribution of their products."
Andrew Fisher, chief executive of wealth advice business Towry Law, described the banning of commissions as "a major step forward for the retail investment market". He added: "It is fabulous news for consumers, and it means that the advisers will be the agent of the client, rather than the agent of the product provider."
When the review was first published in November, the FSA said it wanted to bring an end to the current commission system. The regulator has gone one step further in the latest paper, by making it clear that advisers can only be paid through adviser charges.
Jon Pain, managing director of retail markets at the FSA, said: "The RDR is about regaining consumer trust and confidence in the retail investment market, building a more sustainable sector and making it easier for people to find their way around and get the help they need – this is more important now than ever before."
Julie Patterson, director of authorised funds & tax at the Investment Management Association, said: "We welcome the overall aims and philosophy of the proposals, but there are a number of practical points where we believe changes are needed."
She added that while the FSA's intentions on adviser charging are sensible, the recommendations for fund managers were not proportionate.
-- write to mturner@efinancialnews.com
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