Watchdog to end commission based financial advice

It has been reported that the UK’s financial regulator, the Financial Services Authority, is set to put an end to all commission based financial advice, which will ultimately change the way in which financial products in the UK are sold to consumers. This move is part of an overhaul of the financial sector by the regulator.

The plans were outlined in the FSA’s Retail Distribution Review, and the measures are likely to have a huge impact on many financial services providers. This is because it will mean that they can no longer earn commission on a variety of financial products, such as investment funds, life assurance, and pensions. The changes have been provisionally scheduled to take place in 2012.

One official from the FSA said that the measures were being taken in a bid to try and rebuild consumer confidence following the last couple of years, which have been particularly turbulent in the financial sectors. He added that a more sustainable sector needed to be created, and that something needed to be done to help consumers get access to the advice that they needed quickly and effectively. He said that this was now more important than ever before.

At present the proposals over ending commission based financial advice are still open for consultation, and will remain so until later on this year. One of the major issues that the proposal aims to address is the issue of commission based mis-selling, where consumers may end up receiving poor or unsuitable advice by an industry professional that is commission based. This is due to concerns over advisors recommending products based on the amount of commission they will receive rather than on which product is best for the consumer.

At present around 80% of payments to independent advisors comes via commission rather than from a fee from the consumer, and in many cases the consumer does not realise that the advisor is getting commission, and assumes that the advice is simply free. The new regulations will stop financial groups from offering commission to advisors in order to get recommendations.