Financial Sales Revolution
The way we buy – and are sold – financial products will change radically if plans published this week by the Financial Services Authority are implemented.
In future only those who are fully independent and trained to a high standard could call themselves advisers. The rest would have to be labelled sales staff.
This new division of financial services into ‘advice’ and ‘sales’ is intended to make it much easier for a customer to understand what is being offered when they go for help with financial products.
At the moment a customer who visits their bank to discuss a pension or investment will see someone called a financial adviser. But that ‘adviser’ cannot give independent advice. They can only talk about and sell the products of the bank they work for (and perhaps a small number of other firms the bank has commercial links with). And this adviser has a clear financial stake in making a sale through commission or bonuses. That is not advice in any meaningful sense.
In future those people would do a similar job but they would not be called advisers. They may not be able to give any sort of advice at all, confining themselves to selling products which the customer had selected themselves – with or without the help of an independent financial adviser. The FSA admits however it may have to "allow firms to develop sales services that include some element of advice" which may be called ‘guidance’.
Independence would also be more strictly defined than it is at the moment. Independent advisers would, of course, have to recommend products from across the whole market. But they would also have to operate without the provider of the product playing any part in how much they were paid. They would also have to be trained to a much higher standard than is currently required and the training itself and the qualifications given would be rationalised.
Independent advisers could still be paid commission. But because that would not be fixed by the provider, the amount could play no part in the decision to recommend a particular provider or a particular product. Exactly how that would be achieved is not clear.
The FSA warns that these and other difficulties could mean "it is not possible…to achieve this…simple and clean separation" into sales and advice.
But this bold plan is far more radical than many had expected. And if a way is found to make it work, it could restore the trust of customers in the financial services industry and encourage more people to save for their future.
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