The chief City watchdog today unveiled plans for a wide-ranging shake-up of the financial services industry - but critics said it had not gone far enough.

In its Retail Distribution Review, the Financial Services Authority has put forward plans, drawn up by the industry itself, which are designed to make the real cost of financial advice much more transparent and distinguish it more clearly from the cost of financial products, such as unit trusts and insurance.

It is proposing a new tiered structure for financial advice, with the top tier of advisers able to cover the full range of financial products, from savings accounts to investment trusts. A second tier, which could include banks, insurers and some existing financial advisers, would offer primary advice - simple advice, at a lower cost, on comparatively simple products, including tracker funds, cash Isas and stakeholder pensions.

Within the top tier, there would be a distinction between professional financial planners, who would be fee-based and able to call themselves independent, and general financial advisers, who could continue to receive commission but would lose the ‘independent’ label.

But Patrick Connolly, of Towry Law, a fee-based adviser, said: “The Review has not drawn a clear enough distinction between fee-based and commission-based advisers. Under the proposals, some advisers who receive commission would be able to call themselves fee-based, provided that they agreed these payments with the customer. We think this is a dilution of genuine fee-based advice. Advisers that are paid commission have to sell products in order to get paid and this could lead to a conflict of interest between what is good for the adviser and what is good for the client.”

However, other advisers said the review offered consumers the prospect of much greater clarity when they came to pay for financial advice. Justin Modray, of Bestinvest, an IFA which is both fee and commission-based, said: “The review is suggesting a move towards so-called ‘factory gate’ pricing, where consumers can see exactly what a product will cost - minus any advice - and then, separately, exactly what advice will cost. This is a definite step forward from the current set-up in which the cost of commission is not always crystal clear.”

He also welcomed moves towards ensuring that the very top tier of independent advisers will be expected to hold a high-level qualification in financial planning.

The FSA will now invite comments on the review over a six-month consultation period. Clive Briault, managing director of retail markets at the FSA, said: "The major changes that have been proposed could have many consequences for the market and a full and lengthy debate is required."

source : times online