Financial advisers are to be banned from receiving commission for selling investment, pension and life assurance products from 2012, under radical new rules announced by the Financial Services Authority in the UK.
In its Retail Distribution Review, the regulator set out new measures to “ensure that commission-bias is removed from the system – and recommendations made by advisers are not influenced by product providers.”
Commission – the payment made by industry providers to advisers who sell their products – has been blamed for a series of mis-selling scandals over the past 20 years, involving mortgage endowment policies, personal pensions and “precipice” bonds. But Thursday’s proposals are the first to acknowledge that the practice has harmed investors.
The FSA said: “The proposals bring to an end the current, commission-based system of adviser remuneration: we propose to ban product providers from offering amounts of commission to secure sales from adviser firms and, in turn, to ban adviser firms from recommending products that automatically pay commission.”
Instead, investors will be told how much the advice is going to cost up front, and will be given the choice of paying it as a fee, or having the cost deducted from their investment. Crucially, the amount the adviser receives for recommending a product will be determined by the investor, and not the product provider.
Fees-only advisers, who already charge a fixed or hourly rate for advice and rebate commission to investors, welcomed the news.
“This is a great day for the consumer,” said Andrew Fisher, chief executive of advice firm Towry Law. “It is a ban on the bribery and corruption that has plagued industry. Misselling driven by commission should now end.”