The FSA has finally decided that it would be a good idea for "Independent Financial Advisers" to actually be independent. One would have thought it completely obvious that a salesman on commission was an unlikely source of impartial advice. It has finally become obvious to the regulator.
FSA is proposing to put an end to commissions for some services. Unfortunately, a hole remains in that so called "basic advice" will still be paid for through commissions. While this only applies to sales of stakeholder pensions and savings products, it still means many people will be receiving biased advice. Even worse, the advice given is "pre-scripted": i.e. lacking in the application of judgement and therefore of dubious value even if unbiased.
The argument in favour of commissions was always that customers would not be willing to pay fees. Of course the customers did ultimately pay the IFA's fees, now they will know what they are paying. Perhaps some will decide to learn how to manage their money themselves.
The FSA also throws an interesting light on just how well qualified IFAs are. A new, tougher minimum qualification is being proposed, that would be roughly equivalent to the first year of a degree. What was the old qualification equivalent to? That is reflected in the quality of advice currently available.
Comments
MonevatorHi, thanks for stopping by and commenting on my blog! As you say, it now seems obvious commission was a terrible idea to all concerned, except those who had been raking it in naturally. It's interesting then to think how we got into a state where it was normal.
Perhaps commission is a surviving relic of a more deferential, less savvy/connected age, where consumer information and choice simply wasn't available, and where most people wouldn't have asked questions?
It's almost impossible to think back to such a time, just as it's hard to imagine a time when a job was for life or an employer was seen as having a benevolent duty of care, I suppose. The past truly is a different country.
Business Post mails it : Interactive Investor Blog[...] I’ve had many barney with Graeme, but I agree with his response to the FSA’s consultation paper on the distribution of retail investments, aka financial .... [...]