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FSA to stamp out financial advisers commission

In a move which is set to change the landscape of the whole financial services industry, the Financial Services Authority (FSA) has announced plans to stamp out commission for financial advisers for promoting individual investment products and investment services. Since the very early days of the financial services industry there has been a very close relationship between advisers and investment product providers, and this relationship has been made more transparent by FSA regulations over the last few years.

The only alternative for financial advisers in the future is to charge customers upfront for their services and advice and take no initial commission and no trailing commission from investment product providers. While these new regulations will not come into force until the end of 2012, recent figures released by the FSA suggest that on average 5.6% of sums invested by customers are paid out in commission.

On the surface, so long as the relationship between investment advisers and investment product providers is transparent, few people have any difficulty agreeing to some form of commission payment. However, there have been a number of alleged mis-selling scandals over the years with a recent case in 2008 citing pension fund switches which allegedly cost consumers around £43 million a year.

Whether the whole industry is paying for a small number of mis-selling scandals or indeed the problem is far deeper than it appears on the surface is open to debate but whatever happens, changes are afoot in the UK financial industry.

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