FSA considers banning non-advised sales for complex products
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The FSA is looking at banning non-advised sales where products are particularly complicated or where there is a high risk of consumer detriment.
In its discussion paper on product intervention published today, the FSA outlines that one of the interventions it is considering is preventing certain products being distributed through non-advised channels.
The regulator cites its work on pension transfers and distributor-influenced funds as areas where the FSA says it is inappropriate to use non-advised sales approaches.
The FSA acknowledges that consumer protection is higher for advised sales than non-advised sales, giving the example of investment advisers who are required to recommend suitable products that are in the best interest of the consumer.
But the FSA also argues that financial advice costs money, which would force competent consumers to pay more than they need to to access financial products.
The regulator also says that banning non-advised sales altogether could rule out online sales, which stimulates competition particularly among younger consumers.
The FSA says: “Preventing non-advised sales would not, therefore, be an approach we would expect to use widely, but only for products where the risks are such that they outweigh the costs involved.”
The option of banning non-advised sales for certain products echoes the recent proposal to come from Europe to ban execution-only services.
The European Commission put forward two options in its recent Mifid consultation paper in January: to tighten up the definitions around when execution-only services can be used; or banning execution-only services altogether.
Another option the FSA has outlined for intervening in the product cycle earlier would be to restrict some products to certain client groups, such as professional investors.
The FSA has also mooted a requirement for advisers to hold extra qualifications in addition to being qualified for their core advice activity.
For example, advisers who are qualified to advise on packaged products at the minimum level may be restricted to advising on more mainstream investments, with specialist advisers holding additional appropriate qualifications.
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Readers' comments (16)
Tom Winstanley | 25 Jan 2011 3:13 pm
It will be a cold day in hell before I start paying for advice which I do not want, need or indeed would for the most part be unwise to take.
If ever there was an example of overweening power and influence, the EU proposal to ban execution only sales is it.
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malc | 25 Jan 2011 3:14 pm
Get off our backs, Big Nanny state.
Caveat Emptor
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Barry Davys | 25 Jan 2011 3:20 pm
"The regulator also says that banning non-advised sales altogether could rule out online sales, which stimulates competition particularly among younger consumers."
If this quote from the FSA is correct it just shows how little is understood. Online sales do not stimulate competition between "consumers". it stimulates competition between providers.
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Tom Baigrie | 25 Jan 2011 3:32 pm
At last the FSA cotton on. I think we were telling them that that was the right thing to do in 2004. If you can find a more complicated product than properly arranged Critical Illness or Income protection do tell me! Trouble is humans are very complicated machines and so protecting against their breakdown at low cost is simply not simple! Which is fine as long as advisers can do the job properly (and take responsibility for it) without being undercut after the event by non-advisers pretending the client knows exactly what they are doing. Actually Term Life insurance must be pretty complicated too as despite its shortage of moving parts we find we can improve the buying decision of most who have previously bought without advice! Hurry up in this one FSA!
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Swanny | 25 Jan 2011 3:49 pm
Might ban this - but not that.
Might need further qualifications for this- but not for that
Might do this- but not that
In fact
Might get it right - but probably not.
What we do know
Total confusion
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Ron Jones | 25 Jan 2011 3:53 pm
I have never felt the need to have competition banned, but I always felt it should be a level playing field.
Why not have serious health warnings for non advised sales, highlighting the lack of protection, and then it is buyer beware etc.
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Anonymous | 25 Jan 2011 3:55 pm
Nice.
Perhaps the FSA would like to include in their MMR document, the execution only element of mortgage sales used by many high street banks when customers 'think' they are being advised, when in fact they are not.
If the FSA deem mortgages as 'non-complex' then they obviously haven't spoken to the public.
That said, it won't happen - as that action that would upset the banks it fights so hard to protect..just like how they backtracked over individual mortgage adviser authorisation..
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Alan Lakey | 25 Jan 2011 3:55 pm
I happen to believe that there are many products that consumers would be foolish to buy without advice.
Equally, like Professor Jim Gower, I believe that consumers should be allowed to do practice silly or even idiotic financial behaviour. That is their prerogative.
Where does this 'cleansing' end. Perhaps we should stop some people from voting, or maybe living near us. How about banning the wearing of certain colours.
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Mike Fitzgerald | 25 Jan 2011 4:21 pm
The FSA should ban the sale of Non Advised mortgages by Non Regulated advisers in banks and Building socities.
Until they do this the public are still at risk from obtaining an in appropriate mortgage for their needs
So get all staff who sell Non advised mortgages trained and properly qualified.This should have been done years ago and lenders must spend some money in training.Then they might realise that the broker route for their products is actually cheaper
Mike Fitzgerald-The EMBA Group Ltd
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Stephen Pett | 25 Jan 2011 4:37 pm
23 years to discover the blindingly obvious.
There is little hope.
Ho hum.
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