The paper calls for a clear separation between sales and advice and a raising of the standards for those who want to stay part of the advice category.
Under the proposals advisers would need to be “independent in terms of status and in their practices” and remuneration would be determined without product provider input.
The sales channel would offer non-advised execution-only or guided sale purchases.
The FSA says this might extend beyond savings and investment products to include protection products, particularly for consumers with high levels of debt.
It says this separation may require changes for advisers in the tied and multi-tied sectors who currently provide advice, to deliver clarity for consumers, although this is not driven by any regulatory concern about these sectors.
The FSA says it has still to decide whether membership of a professional body should be compulsory as it is worried the extra costs could be passed on to the consumer.
The paper makes clear the FSA is still open minded about the changes that are needed to adviser remuneration. It says the FSA wants to stop providers playing a part in the determination of advisory remuneration to remove the potential for bias.
But it says it is not currently practicable to stop payments passing from manufacturers to distributors and the FSA is not looking to stop providers organising payments to advisers from customer’s accounts or investments.
The FSA says it is not looking to end the practise of factoring, whereby the provider advances payments to the adviser and recovers the cost from the customer out of regular charges over the duration of the product, as long as the provider has played no parting determining how much remuneration has been paid.
The paper also floats the potential for some kind of maximum commission agreement, as revealed in last week’s Money Marketing. It says such a move could create competition concerns but that some firms would welcome this kind of intervention.
The paper also recognises the difficulty of the corporate market moving to fees.
The Interim Report also calls on product providers to change their business models so they do not determine how much advisers are paid.
The report says: “We think that the simpler landscape has the potential to deliver greater clarity for consumers and could lead to a material increase in the levels of consumer confidence in the advice sector.
“A more professional financial advice sector, together with wider access to straightforward sales services, could then mean that many more consumers meet their savings needs.”
I note that the FSA is considering some type of Maximum Commission Agreement but is worried about competition concerns.
A simple way around this would be to introduce a ‘Recommended Commission/Payment’ with the proviso that providers would have to give a Highlighted Disclosure if the payment exceeded the recommended commission and advisers would have to explain their reasons for so doing in their suitability letter.
I am confident that the vast majority of adviser firms would welcome such a move which would overcome competition concerns but achieve much the same aims as a Maximum Commission Agreement.
Peter Richardson, APFS