Ban on commission-based selling for financial advisers
31st December 2012
Financial advisers are no longer allowed to receive commission on the sales of financial products under new rules in force today.
Under the Retail Distribution Review (RDR), financial advisers will instead have to charge upfront fees on the sale of products such as pensions, loans and saving accounts.
The move by the Financial Services Authority (FSA) is designed to create a more transparent and fair charging system and to help prevent the risk of mis-selling, it said.
Establishing what the FSA calls a 'resilient, effective and attractive retail investment market that consumers can have confidence in', the RDR aims to protect consumers across the retail investment market and will:
- Replace commission-based selling with a transparent charging system - advisers will have to explicitly disclose fees before advice is given
- Categorise advisers into those which offer 'restricted' or 'independent' advice - restricted advisers can only offer advice on certain products and/or certain product providers while independent advisers can offer guidance on all types of investment areas from all products across all firms in the market
- Require all advisers to obtain additional higher-level qualifications.
Speaking to the press, the FSA's head of savings and investments Linda Woodall said: "The changes will improve customer confidence - we want people to feel that they are getting a service from their financial adviser that is relevant to their circumstances and in their best interests."
"These changes are about making the cost of advice clearer, where else would you buy something without knowing in advance how much it costs?"
"Customers will now know how much advice is costing them, the service that they are receiving and be reassured that their adviser is qualified."