The new chairman of the Financial Services Authority (FSA), Lord Turner of Ecchinswell – Adair Turner – starts work on Monday. A new head of retail markets, Jon Pain, started earlier in the month. It is all change at the top, but what does this mean for one of the most important changes being planned by the FSA?

The regulator was due to announce new rules to improve financial advice and require much better qualified advisers, but the announcement has been put off until November because the new men want to have a look at it.

The financial services industry does not have a good public reputation. Falling confidence in the banks and the mis-selling of pensions and endowment mortgages have left consumers disenchanted. At the heart of it all is a mistrust of the system of paying advisers and intermediaries by commissions and bonuses linked to sales targets. Where do consumers get advice they can trust?

The FSA has been trying to unravel this for the past two years under its Retail Distribution Review and the industry is holding its breath about the outcome. Sir Callum McCarthy, the outgoing FSA chairman, was very clear that there was a need for change. At a Gleneagles Conference exactly two years ago this week, he stunned a top-level audience by saying: “We have a system which serves neither the producer of the services nor the consumer of the services. It is doubtful whether it serves the intermediary either.”

But do Lord Turner and Mr Pain have the courage to sort this problem out, or will they see it as all too difficult in the present climate and seek to water down the proposals?

The most dramatic change being considered is to end commission payments to independent financial advisers. Most IFAs receive commission on every product they sell, leading to accusations that they select products that pay them the most. Consumer groups had pressed for, and the FSA had accepted, that advisers who call themselves “independent” should be paid only by the consumer, breaking their “dependence” on product providers and ending the potential for bias.

The proposals went on to say that everyone else, apart from the redefined independent financial adviser, would be a salesperson and that is how they would be described. All too often consumers think that the sales spiel is impartial advice, so it is important that they know the status of the person sitting in front of them. So what was being proposed was a clear-cut, twin-track system of either “independent advice” or “sales”. Ending commission would be the first step towards making independent advisers true professionals. The other important ingredient envisaged by the FSA was a gradual lift in qualifications, from a low baseline.

This would be a radical change to an industry feeling not a little sensitive already, but creating a clear distinction between independent advice and selling is what consumers need. At the moment there is a lack of trust, and what you distrust you tend to keep away from. With public sentiment at an all-time low, this could be the boost that the industry requires and I hope the new top men of the FSA have the will to make it happen.

— John Howard is a former Chairman of the Financial Services Consumer Panel

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