Consumer champion Which? says independence must mean whole of market and the FSA needs to ensure that customer-agreed remuneration does not allow product providers to earn more in charges.
Principal policy adviser for financial services Dominic Lindley says he disagrees with two central elements of the retail distribution review – the potential redefining of independence and installing the 15-year long stop.
Lindley says independence should mean whole of market advice and that it is totally wrong for a tied or multi-tied adviser to be allowed to use the term independent, even if they are paid by a fee.
He says: “Independent is one of the few labels in advice that consumers know about, one of the few brands where they understand what it means.”
Lindley says Which? is quite confident that the FSA can be moved on this issue, particularly considering the weight of opinion against the regulator.
He warns that more needs to be said from the FSA about how CAR will affect the total cost of advice to the consumer and there is a “big question” over how providers will react to CAR in terms of how far they drop their charges.
He says if the cost of advice is removed from provider charges, then these charges need to be driven down to such an extent that the cost of advice can be factored in without making the process more expensive for consumers.
Lindley says Which? is supportive of the plans for CAR but is “leaning towards” calling for it to operate across all segments of advice.
He says: “If you are bringing this in for one segment of advice, are you saying that other segments do not have to agree payment details with their clients? If you just deal with bias on the independent side but not with other forms of advice bias, then that is a big concern.”
Lindley says that with regard to the potential hit that mid-market IFAs could take from the RDR, over the last 12 years of mystery shopping exercises, the IFA has consistently come out well so Which? would be worried by anything that restricts the consumers’ opportunity to get “good affordable financial advice”.
For primary advice to be successful, he says the FSA must test consumer outcomes of such a service against the outcomes of full advice.
Lindley says the FSA would have to put forward a coherent case for how it can lower standards of suitability to reduce costs without compromising consumer protection.
He says Which? continues to challenge the assertion that it has heard from some providers that the way to service the mass market is through more expensive products and less consumer protection.
Payment protection insurance should be a warning to the FSA about what can happen when products are sold by a heavily commission-based salesforce with little protection for the consumer, he adds.
Lindley says he welcomes Aifa’s focus on the consumer as the starting point of its work on the RDR and Which? will be looking to ensure that this continues throughout the consultation.
He says: “We are glad that the focus is on the consumer. This will benefit firms offering good affordable financial advice and providers manufacturing high quality products. We want to get to a situation where the providers that get the most recommendations are those that offer the best value consumer proposition.”