Protests over shake-up of advisers

THE financial advice industry is set for a radical shake-up that will ban independent financial advisers (IFAs) from taking commissions. The moves have sparked strong criticism from IFAs, who claim only the wealthy would be able to afford independent advice if the plans go ahead.

Under proposals outlined by the Financial Services Authority, IFAs will have to fix their costs with investors before giving advice, ending the practice of being paid commissions by product providers.

They would also be forced to separate their charges from those of the products they sell as part of attempts to increase transparency. The changes, which will be the subject of consultation until 19 April, would end the industry's so-called polarisation regime, under which advisers who are tied to individual product providers are banned from selling other companies services. They will also allow product providers to take stakes in IFA businesses.

The IFA industry claimed the cost of independent advice would be prohibitively expensive. IFA Promotion chief executive David Elms said IFAs charged hourly rates of between £75 and £200 and many poorer areas would be left with no IFAs as business dried up. Customers would also be disadvantaged by the rationalisation that would occur as product providers sought to protect their distribution channels by taking strategic stakes in IFA businesses.

There will be a two-tiered system with independent advisers for the wealthy while middle England will be priced out of the market, Elms said.

The proposals are part of wider efforts by the FSA to overhaul the personal investment industry. It already has a review under way into the insurance industry's with-profits policies, which it believes are unnecessarily complex, and is considering changes to the rules governing insurers' disclosure standards.