FSA outlines proposal to ban commissions

The United Kingdom’s Financial Services Authority, in an effort to restore “trust and confidence in the retail-investment market,” has outlined a proposal to ban commission payments by investment management firms. The FSA, which is comparable to the Securities and Exchange Commission in the United States, outlined details of its sweeping plan Thursday in a 165-page report. The report is the culmination a Retail Distribution Review that was launched by the FSA in June 2006. According to the report, the general proposals include: improving the clarity with which firms describe their services to consumers, addressing the potential for adviser remuneration to distort consumer outcomes and increasing professional standards for advisers. “We are proposing changes to make it easier for consumers to distinguish between the different forms of advice to them, with all investment firms clearly describing their services as either independent advice or restricted advice,” the report stated. On the compensation issue, the report stated: “All firms that give investment advice must set their own charges, in agreement with their clients, and will have to meet new standards regarding how they determine and operate these charges.” According to the report, the proposal will “bring an end to the current commission-based system.” Consumers will still be able to instruct their adviser to deduct fees from their accounts if they wish, but these fees no longer will be determined by the product providers, according to the report. On the adviser standards issue, the FSA plans to establish minimum qualifications and to institute an overreaching code of ethics and enhanced standards for continuing professional development. According to published reports, the proposed changes are expected to cost the U.K.’s financial services industry more than $700 million and add an annual $66 million to its cost of compliance. The FSA is taking comments on the proposed changes through Oct. 30. The final rules are scheduled to be published during the first quarter of 2010, with the changes taking effect by the end of 2012.