Press Release on FSA Retail Distribution Review
by Dr. Ros Altmann
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The Retail Distribution review paper, just released by the FSA, makes some interesting and radical proposals about reforming financial advice in the UK. The aim is to build consumer trust in financial services, but as long as ‘salesmen’ are called ‘advisers’ and commission bias remains, the value of financial advice and trust in the industry is likely to remain low.
We have had so many changes in recent years, but still the confusion remains. The public simply have no idea who they can trust to give truly independent, objective and holistic advice to help them plan their finances.
The FSA is now proposing to split what it calls ‘financial advice’ into three tiers:
1. Professional financial planning and advisory services – fee only and independent
2. General financial advisers – who would offer ‘full financial advice’ but are commission-based and would not meet ‘professional financial planner’ status
3. Primary advisers – trained only to sell specific products, commission based, largely offered by banks, buildings societies and insurers, offering ‘simple’ products to consumers who cannot afford higher levels of advice.
In my view, these three levels of ‘advice’ will prolong the distrust of the financial industry. Only those who can offer truly independent financial planning advice, without commission bias, should be labeled as ‘professional advisers’. It is wholly unclear what the difference between the first and second tiers really is, except that one charges fees – confusion will remain.
But an even more important danger is that the bottom tier of so-called ‘primary advisers’ should not, in my view, be called advisers at all. They will be salesmen (or women) who should be named accordingly. If salesmen pose as advisers, how can customers truly understand what real advisers should be doing for them?
If you go into a Lotus showroom, would you really expect the salesman who is there to help you decide which model to buy to actually tell you that you may need a four-seater hatchback? You would need to find someone who can assess all your needs, before you decide which car to buy.
Especially as the Government considers launching personal accounts for mass market pensions, the need for proper, high level advice is clear, since pensions may not be suitable for many. Perhaps ISAs will be more appropriate, but the pensions ‘primary adviser’ may not tell them that. The interaction with means testing of state pensions and high debt levels on the suitability of pension contributions needs to be explained by an adviser who understands financial planning and even lower income groups need to be told the difference between a professional adviser and a salesperson. By using the term ‘adviser’ to refer to all three tiers, the danger is that consumers will never really appreciate the value of independent, fee-based advice and this will make it much harder to rebuild confidence in long-term savings over time.
28th June 2007
Dr. Ros Altmann