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Wag the retail

As the FSA’s review of retail distribution gets under way, advisers might be forgiven a cynical yawn that yet another consultation process has started.

Many of you may feel that the FSA has already made up its mind about the results and the outcome will be yet another series of measures making life even harder if you are trying to offer independent advice.

None of us can afford to be that cynical or complacent.

Let me make it clear. The Personal Finance Society welcomes the review, is not cynical about the process and believes it is a great opportunity to engage with the FSA.

It is a shame that the review had to be initiated by the FSA in the first place. The aims and objectives of the review are ones which we all agree are much needed to improve the industry.

But it is a review we should have been able to put in place ourselves as an industry to prove to the regulator and Government that we are capable of effective self-regulation.

That was an opportunity missed and now the review is under way we have to embrace it for the new opportunity it presents. We do not have a lot of time to respond effectively with the June deadline so we need to be honest and open in our discussions.

There will be considerable focus on commission-led sales, not least because the last mystery shopping exercise revealed that over a third of sales were commission-driven. But we must not allow this review to be dominated by commission. The key issue is competence.

We have to be able to articulate how and why advisers are competent to provide the advice they do and why this should be paid for.

However, we have to face up to the fact that it seems implicit to the outside world that advisers are somehow not competent or professional because commission is still a major source of remuneration.

We have to tackle this is in a mature and open way. The argument about commission-led sales is lost. We will do ourselves no favours if we continue to hang on to a system which is perceived as being outdated and the source of much of the misselling which has gone on periodically.

It has left many people with the impression that advice is free – and in fact should be free – because the way in which commission is paid remains unclear to the consumer.

We have to work as part of the review to create a greater sense of transparency, hand in hand with communicating the professionalism and competence of advisers. Those who know the value of independent advice understand many of these issues but still not enough consumers do.

By committing to a programme of qualifications that are easily recognised by the public and by striving to achieve the chartered status which is available via the Chartered Insurance Institute, the professionalism of advisers will become more widely known. The PFS is going to play its part by promoting the value of professional advice to the public.

The FSA is not the enemy in this review. It has approached the industry with an open glove, inviting us to lead the discussion and create our own solutions. Let’s take this opportunity and engage with the FSA by offering real, practical and workable solutions that move the industry forward to the benefit of everyone.

If we don’t, the open glove will become an iron fist and a new set of regulations could be imposed that suits no one.

Tim Eadon is chief executive of the Personal Finance Society

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