The issues in summary
FSA has become increasingly uneasy over what it perceives to be the continuing poor quality and limited scope of retail advice.
Against this background, FSA now says that
"There is general agreement that the quality of advice and clarity of services offered to many consumers needs to improve to enhance the industry’s reputation and build consumer trust. This could be achieved by improved standards of professionalism and a clearer distinction between the different services being offered to consumers."
FSA believes that retail products with complex charging structures are bought by customers with little experience, who find it difficult to understand risks or commitment. Customers do not have sufficient understanding to engage in the selling process and so rely heavily on advisers, whose remuneration structure may be inconsistent with fulfilling customers’ needs. The poor quality of advice may only become apparent many years after the sale. FSA supports this argument by pointing to classic failures such as mortgage endowments, personal pensions, Splits and Structured capital-at-risk products.
To tackle these issues, FSA convened five industry-focused groups to review:
- sustainability of the distribution sector;
- impact of incentives on advice processes;
- professionalism and reputation of the sector;
- consumer access to financial products and services; and
- regulatory barriers and enablers for the market solutions".
Together, the groups have come up with a radical series of proposals for reform which, in effect, call for
- Higher training and prudential standards for retail advisers;
- A reduction in, if not the elimination of, commission based selling and its replacement by customer-agreed remuneration;
- A new polarisation of retail advice, with full in-depth advice provided to those prepared to pay for it and lesser, more elementary, advice for those who cannot.
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