Unveiling the results of its four-year Retail Distribution Review, the Financial Services Authority (FSA) says the new rules will “remove commission bias”.
Commission payments have been the norm for financial services firms selling retail investment products such as personal pensions. However, mis-selling scandals are said to have cost investors millions.
From the end of 2012, financial advisers will have to tell customers how much they charge for their services upfront and charge them directly for their services.
In addition, firms will not be able to accept commission in return for recommending specific products.
“Consumers will know what they are buying upfront, how much it will cost them and also have the peace of mind that it was recommended to suit their needs”, the FSA says in a statement.
Financial advisers recommending products to customers will also have to demonstrate that the recommendations are based on a “comprehensive and unbiased analysis of the market, and that any product selection is made in their clients’ best interests”, the watchdog adds.
Sheila Nicoll, director of conduct policy at the FSA, says: “If this market is to survive, and thrive in the future, people need to know their adviser is acting in their best interests, and is well qualified to carry out that role.
Today’s new rules are designed to boost confidence and trust in the retail investment market by removing commission bias, actual or perceived, and exploding the myth that investment advice is free.”
The FSA has floated several measures recently aimed at rebuilding trust in the financial services industry in the wake of the financial crisis.
It, alongside the Office of Fair Trading (OFT) and the Financial Ombudsman Service (FOS) proposed the creation of a joint committee to improve customer experience last month.