Sam Instone, managing director of AES International in the UK, said this does not serve much for the general good: “This is a tiny issue. Are consumers going to be better served? Probably not. The FSA should be looking at the really big issues such as people losing their life savings and pensions and the banks going bust.”
He predicted that nothing much would change. “The market will find a way to deal with it and life will go on as normal and it may well get changed by 2012 anyway.”
Under the FSA’s Retail Distribution Review (RDR) the customer is provided with information about the cost and nature of the advice they are receiving. From the end of 2012, firms will have to be upfront about how much they charge for their services, and no longer hide the cost of their advice behind the cost of a product.
In addition, firms will not be able to accept commission in return for recommending products. Consumers will know what they are buying, how much it will cost them and also have the peace of mind that it was recommended to suit their needs, the FSA said.
The changes also mean firms offering independent advice will have to demonstrate that their recommendations are based on a comprehensive and unbiased analysis of the market, and that any product selection is made in their clients’ best interests. However, if a firm chooses to limit its product range to certain investments or strategies, then the services they offer are restricted, and this should be clearly set out for customers.
Sheila Nicoll, FSA director, conduct policy said: “Today’s new rules are designed to boost confidence and trust in the retail investment market by removing commission bias, actual or perceived, and exploding the myth that investment advice is free.
The Financial Services Consumer Panel welcomed the new rules as a huge step forward for consumers. Adam Phillips, chairman of the Financial Services Consumer Panel said: "At last, the distortion created by commission will be removed from investment advice. Once the new rules are in place, independent advice will have to be truly independent, and not undermined by any commission paid by the product provider. ”
