Advisers must provide two 'keyfacts' documents, entitled ‘about our services’ and ‘about the cost of our services'. These will give consumers much clearer information earlier in the sales process about the type of advice and level of service being provided by the adviser.
For the first time consumers will also be given a 'menu' of commission rates, providing a benchmark showing the average cost of advice. Additionally under the new rules those advisers who want to call themselves independent will have to offer consumers the option to pay for advice by a fee rather than commission.
Dan Waters, Director of Retail Policy at the FSA said:
"These keyfacts documents will make it clearer to consumers that even when financed through commission, advice comes at a cost – and it is consumers who ultimately pay through the charges levied on products they buy. In line with our aim to help consumers achieve a fair deal, we expect this to result in more competitive pressure being brought to bear on commission levels and a need for firms to explain more clearly the services they provide."
The disclosure rules are part of the official commencement of depolarisation after a six month transition period; a new regime which gives the industry the ability to be more flexible in providing advice to their customers and to offer a wider range of products. Previously advisers were 'independent'; advising on products from the whole of the market or 'tied' to the products of only one provider. Following the new rules advisers can also offer 'multi-tied advice' using a panel of providers.
Dan Waters said:
"The removal of polarisation restrictions allows market participants to create innovative business models that respond to current market challenges and the needs of their customer base. This in turn should lead to a more competitive retail investments market, with benefits for consumers and more sustainable business propositions for firms. This is an opportunity not a threat and it is up to the industry to take advantage of it."
Post 1st June the FSA will be checking up on what firms do and taking action against firms that have not made a serious attempt to comply with the rules. A full post implementation review will be carried out focusing on changes to the market and consumer understanding. There will be an interim review within a year and a more formal review after two years, however, changes in the market will be monitored on an ongoing basis.
More information on what this means for consumers and examples of the keyfacts documents can be found on the FSA consumer web site at www.fsa.gov.uk/consumer.
