New rules for financial advisers

The majority of clients do not want to pay a fee for financial advice

The financial advice industry in the UK is set for a shake-up aimed at making it more transparent to consumers.

Under proposals put forward by the Financial Services Authority (FSA), the City watchdog, advisers would have to outline charges and payment options to clients at the outset.

At present, advisers do not have to quote price until the end of the transaction, although they are required to disclose any commissions they receive from banks and other companies which provide financial services.

However, the FSA stopped short of banning the payment of commission to financial advisers, which has been blamed for widespread mis-selling.

The FSA reforms have been hailed by an industry body as a victory for common sense and consumer choice.

Pressure

Traditionally some independent financial advisers (IFAs) have been paid commission by product providers.

Banning commission was a non-starter. Our research shows that 90% of clients said that if they had to pay a fee for financial advice they wouldn't bother

David Elms, chief executive IFAP

This has left some advisers open to the charge that they recommend products which will earn them the highest commission rather than those which best suit their clients' needs.

Instead of ordering IFAs to charge a flat fee for their advice - as it originally proposed back in January - the FSA has bowed to industry pressure and come up with a compromise.

The FSA now proposes that clients be given a 'menu' by their adviser outlining all payment options open to them.

This menu would outline fees and how the prices compared to those charged by other advisers.

David Elms, chief executive of Independent Financial Adviser Promotion (IFAP), a key architect of the menu approach, welcomed the FSA's latest proposals.

"Put simply, best practice is being extended to the whole industry, the consumer can only benefit from these changes," he said.

"Banning commission was a non-starter. Our research shows that 90% of clients said that if they had to pay a fee for financial advice they wouldn't bother," Mr Elms added.

The FSA proposals will now enter a period of consultation with industry and consumer groups, and are expected to come into force next year.