The Financial Services Consumer Panel today described the FSA's proposals to open up the market to a greater variety of retail distribution channels as incomplete and said that they failed to answer key problems in respect of access to financial advice and consumer protection.

The Panel supports the FSA's decision to overhaul the way in which financial advice is structured (known as 'polarisation'). It agrees that, as consumers currently do very little shopping around between providers, whether they go to tied or independent advisers, changes are needed to encourage them to get the best out of the market. However, the Panel believes that the FSA's proposals are inadequate and that additional measures will be needed to secure appropriate levels of competition and consumer protection. The details are set out in the Panel's response to the FSA consultation paper (CP121), published today.

There are two central issues at stake:

• First, the availability of accessible advice is crucial in getting the best deal for consumers. Currently there is a "gap" in the supply of advice, particularly for low and middle income consumers. This needs to be tackled by the FSA. The Panel itself is talking with advice agencies to consider what more can be done in this area, and will report back further to the FSA on its findings.
• Secondly, the FSA cannot rely simply on the market to create the best system for consumers after depolarisation. It must put extra rules and procedures in place to make sure the consumer is protected. For instance, suitability requirements might need to be strengthened to ensure that consumers are always offered products that meet their individual needs. Moreover, rules would need to be put in place to ensure competition. Consumers will need to be informed of the effect of tied arrangements on the range of products on offer; they will need to appreciate that, by shopping around between tied and multi-tied firms, they may be able to obtain better value-for-money.

Colin Brown, Panel Chairman, said "We recognise that there need to be changes, but the FSA cannot leave everything to the market. These are complex issues. The next stage of consultation on rules and regulations will be crucial for our decision on whether we can give the new system our wholehearted support".

Other Points made by the Panel in its Response

The Panel also made detailed comments about some of the specific proposals contained in the consultation:

• All charges should be transparent to the consumer. The FSA should ensure that, in all cases, the cost of advice is separately identifiable from the investment to which it relates and clearly disclosed to the consumer.
• The defined payment system proposed for IFAs is an unnecessarily complicated system. Consumers should have the right to choose whether they pay by commission or by a defined payment irrespective of the channel of delivery.
• There needs to be more information on how the FSA proposes to monitor status disclosure in a fully liberalised market.
• There will be a need for extra training of staff of tied firms who choose to move to multi-tied status.
• A two-tier system of advice is not an effective means of addressing the advice ‘gap'.
• The Panel welcomes the FSA's take up of the idea of a portable financial health check – first put forward by the Panel – and suggests that it should be pursued further.

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Notes to editors