New rules banning commission for financial advisers are good
news for investors, claims a Midland expert.
Will Self, managing director of Self, of Stratford-upon-Avon
firm Self Financial Planners, believes they will get a much better
deal as a result of the changes.
He said: "We work solely on a fee basis and do not take
commission when advising on our clients' financial affairs.
"It is our view that the commission-based pay structure of the
majority of the industry is a prima facie conflict of interest. The
traditional model of commission-based earnings is open to adviser
abuse, with their clients as the victims.
"We would argue that such advisers are not equipped to advise
people on their investments as they may not be truly 'independent'
if they receive varying levels of commission on the products they
recommend.
"This re-shaping of the industry should mean people receive an
improved level of advice and end up buying more appropriate
products - to suit their needs and not the adviser's."
His comments follow the Financial Services Authority's ruling
that financial advisers will no longer be allowed to receive
commission payments from product providers from 2012.
Instead, they will agree an upfront fee with the client,
separate from the charges on the product they are being sold.
The intention is that this should spell the end of
"commission-bias", with people being sold things they should never
be buying.
"It is not before time," insisted Mr Self.
"The commission system and the manner in which investors are
treated have been open to abuse. Some would say it has been abused.
Indeed, one could argue this should have been stopped years ago,
but at least it is now being tackled and I applaud the FSA's
action."
Under the new rules, investment firms must describe their
services as either 'independent advice' or 'restricted advice'.
Independent advice will be based on "comprehensive and fair
analysis" of all products in the market place. Restricted advice
will be limited to products from one or more companies.
Two other forms of low-cost advice will fall within the
'restricted advice' definition - 'basic advice' on 'stakeholder'
products with a cap on their charges, and 'simplified advice', from
firms that sell products based on a personal recommendation.
Financial advice has never been free. Under the current system,
commission paid to advisers is funded by charges deducted from the
value of the investment.
Providers of investments previously ignored by some financial
advisers because they do not pay a commission believe there will be
more demand for their products as a result.
Investment trusts, National Savings and Investments (NS&I)
and structured products are all expected to benefit.
Independent advisers will also be required to advise on all
types of investments.