Regulators crack down on financial advisors
March 15, 2008
Financial advisors in the UK are now to come under scrutiny by financial regulators as part of a crackdown on services from independent financial advisers in operation. Financial regulators have been coming down hard in many areas over the past few months, and financial advisers are the latest to come under the eye of regulatory officials. The problems stem from the way that these financial advisors take their commission from providers that they recommend to customers, yet still class themselves as being independent.
By putting forward new regulations the Financial Services Authority plans to make professionals that class themselves as independent financial advisers charge the customers to whom they are offering advice rather than getting their fee from providers that they recommend. This decision comes amidst fears that some so called independent financial advisers could be basing their recommendations on the providers that pay the most in commission rather than on the provider that best suited to the customer.
In some cases independent financial advisers do give the customer the option of paying the fee. However, in cases where the customer cannot afford the fee there is the danger that they could be given misleading information based on how much commission the adviser can earn.
One official from the Financial Services Authority stated: ‘Product providers often remunerate advisers and there can be a mis-alignment of advisers’ incentives with those of consumers, adding to the risks of consumer detriment.’
The FSA also stated: ‘Remuneration-driven sales can also lead to inappropriate advice to switch between different products in order to generate income for advisers, often resulting in high levels of early termination of these long-term products.’ The Association of Independent Financial Advisers, however, claims that this is not the case and that IFAs are trained to offer independent advice based on what is right for the consumers not based on their earnings.
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