Advisers are baffled by an FSA invitation to banks to come up with a mass market advice proposition that does not use current commission models.
The FSA says high-street banks could provide the solution to the mass market advice “conundrum”. But it has also suggested that such a solution would need to be free from the risk of retrospective regulation.
In a speech last week, FSA director wholesale firms division Dr Thomas Huertas told the Institute of Economic Affairs’ 10th anniversary conference that there is a dichotomy between commission-based distribution agreements and fee-based advice.
He said banks could be the best option for creating a non-commission-based solution for the masses.
Dr Huertas said: “Commission-based distribution arrangements tend to lead to conflicts of interest and may result in misselling. Fully personalised fee-based advice tends to be efficient for both the provider and the consumer only if the consumer has accumulated a significant level of personal wealth over and above his own home and needs or wants that level of advice.”
He said that many consumers who need impartial advice do not have the means to obtain it. He said: “How do we solve this conundrum? We are genuinely interested in working with banks to find a way to do so.”
The FSA, he said, recognises that any solution must account for the effect of price caps, advice must be affordable and provide genuine consumer assistance and demonstrate the principles of treating customers fairly.
Dr Huertas said: “Such a solution would have to provide financial institutions implementing the solutions with comfort they would not be the victim of retrospection by a future regulatory regime – the possibility of someone in the future concluding that a product that lost money must have been missold in the first place.”
But Tenet Group chief executive Simon Hudson says: “It is a sad state to think that the banks will be the saviours for the poor.”
FPW director Karen Ritchie says: “I find it hard to believe that banks would be able to provide advice without charging a commission. Most of the banks seem to only ever give advice based on maximum commission.”