Ernst & Young has warned that product bias will increase as a result of the FSA’s restricted advice channel.
Speaking at Aifa’s launch of its Advice Horizons report today, Ernst & Young director of financial services Robert Wood said many people will choose the restricted advice route over the independent channel.
He said: “Nine out of ten wealth managers are saying they will be restricted because they can make more money that way.
“An unintended consequence of the RDR is that product bias will increase as a result of high numbers becoming restricted. We could see a second round of bias returning to the market.”
FSA head of investment policy Peter Smith says: “Product bias will still be possible within the market but I do not think it is a feature of the restricted channel, I think it is a fact of life.
“If advisers are tied there is the potential for bias but the FSA is looking at how firms are preparing for the RDR, which could touch on this issue.
“What we expect to happen is that advisers make recommendations that are suitable for their clients. If within their product range they have not got something suitable they should say so.”
When pressed on whether that is a likely outcome, Smith says: “It raises interesting questions for the FSA about how that will work in practice and how we will supervise that.”