Financial advisers will have to consider offering clients whole-of-the-market information about all products and providers in the market if they want to call themselves ‘independent’ under new European regulations.
Independent financial advisers will have to show they have considered every product from every provider if they make a personal, unbiased and unrestricted recommendation under the Markets in Financial Instruments Directive (Mifid).
If they give advice from a restricted list of products or providers, they will only be allowed to call themselves ‘financial advisers’.
The British government believes this will create issues for financial advisers in the UK as providers cannot pay IFAs commission or other payments, whereas financial advisers can still be paid the benefits.
British lawmakers believe this could lead to IFAs dropping the term independent from their title so they can claim commission instead of charging clients for providing advice.
Conflict of interest
This could lead to confusion in the market for consumers over who is offering independent advice and whether providers are offering commission or other inducements to promote their products.
MiFiD lets each European nation decide whether to impose its own rules on financial advisers over payment.
The UK is opting out of MiFid and banning provider payments of any kind to IFAs.
A House of Lords European Union Select Sub Committee slated the MiFid plan to ban payments to IFAS rather than all advisers “flawed” and “unworkable” leading to IFAs “simply take steps to avoid being classified as independent”.
The government agreed with the committee, writing to them to say: “The government agrees that the EU proposal to restrict the inducements ban to independent advisers is not the right way to improve investor protection across the EU.
“Applying the ban in this way is likely to distort the market in that firms may simply stop classifying themselves as independent.”
“The payment of inducements for financial advice can lead to conflicts of interest.”
Consumers won’t pay for advice
Meanwhile, other research from global accountancy firm Deloitte suggests consumers will simply stop going to financial advisers if they have to pay for the service.
Asking whether consumers would take financial advice if they had to pay a fee of 3% of their investment, more than half said they would not bother.
The firm reckons this amounts to about 5.5 million clients a year turning away from paid-for advice – with banks as the biggest losers.
The research revealed a third of consumers with less than £50,000 to invest and the same percentage respondents with more than £50,000 would stop using advisers if they were charged.
However, 56% confirmed that they would not consult advisers if they had to pay a fee of between £400