Financial advice set for overhaul

Financial advisers will have to be upfront about all charges

A major shake-up of how financial products are sold comes fully into force on Wednesday, aimed at improving consumer choice.

The changes mean financial advisers will no longer be restricted to offering only the products of the bank or insurance company that employs them.

Instead, advisers will be able to offer pensions, insurance and investments from different providers.

Consumers will also get a clear choice between paying by fees or commission.

Polarisation scrapped

These key facts documents will make it clearer to consumers that even when financed through commission, advice comes at a cost Dan Waters, Financial Services Authority

The current system - known as "polarisation" and in place since the late 1980s - was designed to make a clear distinction between independent financial advisers (IFAs), who were not tied to any firm, and financial advisers, who were employed by a bank or insurer.

Under polarisation, only IFAs were free to offer clients products from any insurer or bank.

Financial advisers had to stick to selling the products offered by their employers.

As a result, people who went to see financial advisers may not have been sold the best product in the marketplace, just the best that the adviser's employer had to offer.

Polarisation will finally be scrapped on 1 June. IFAs and financial advisers have had the past six months to prepare for the changes.

Risking bias

Another key change being introduced is that financial advisers will have to set out how much the advice they give is likely to cost.

They will do this through a Key Facts Information (KFI) sheet handed to the client before any investment or insurance product is sold.

Advisers can continue to accept commissions under the new regime.

But to avoid the risk of bias, they must also offer consumers the choice of paying a fee for the advice they receive.

"These key facts documents will make it clearer to consumers that even when financed through commission, advice comes at a cost - and it is consumers ultimately pay through the charges levied on products they buy," Dan Waters, Financial Services Authority (FSA) spokesman said.