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FSA considers banning non-advised sales for complex products

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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There are 16 comments at the moment, we would love to hear your opinion too.

  1. 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.

  2. Get off our backs, Big Nanny state.
    Caveat Emptor

  3. “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.

  4. 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!

  5. 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

  6. 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.

  7. 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..

  8. 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.

    This is how Nazism started.

  9. 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

  10. 23 years to discover the blindingly obvious.
    There is little hope.
    Ho hum.

  11. The FSA say that the underlying problem is that “professional advisors” have been giving consumer’s bad advice therefore the solution is to ensure that everyone buys from a “professional advisor”!

    What really hurts me, is that the pension scheme I’m using has been chosen my employer, the financial advisor is also chosen by my employer, the limited range of unit trusts by the pension company!

  12. Start with Hargreaves Lansdown Vantage SIPP 25th January 2011 at 4:54 pm

    Make a start with the Hargreaves Lansdown Vantage SIPP (Self Invested Personal Pension) who make a fortune sell SIPP on a so called execution only basis but of course make no mention of the numerous elements of advice issues in their Newsletter that acts a the template for their sales policy. FSA are you reading this????

  13. Oh dear, Barry Davys above. The FSA obviously means that online non-advised sales will promote competition amongst Providers – their point is that it is primarily younger consumers who will access products online, thus promoting Provider competition.
    Actually, of course they are still wrong as it is not the young who will look online for financial products – it is the informed retired people!

  14. The banks think everything they sell is ‘non advised’, if it was an IFA doing what they do they would be put out of business.

    All the rules and regulations in the world are no substitute for effective supervision, the ability to spot trends early and the gumption to move quickly.

  15. Well said Tom Baigrie. Also why are life plans never put in trust? I have to say though that even so called advisers are not doing this in the vast majority of cases.

  16. A sensible step to ensure consumers are better protected against themselves. I have been pressing FSA to do just this for equity release sales with good reason. Simon Chalk, Later Life Planner, LaterLiving

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