The Sandler Review has claimed the Financial Services Authority’s (FSA) definition of independent advice, under CP121, is too restrictive,
It recommended the FSA broaden its definition to include sales-contingent fees, and called for the extension of the CP121 proposals, so the word independent is not restricted to intermediaries remunerated with fees, but also applies to advisers.
Although Sandler agreed with the FSA on commission-based intermediaries being unable to use the term independent, he also said payment should be more flexible.
He said: ‘Consumers would be much more aware they were purchasing advice, distinct from the product, at a cost. This payment could take a number of forms. It could be a conventional hourly or fixed fee, which was paid regardless of whether a sale took place. It could also be sales-contingent or it could be paid in installments. At the start of a relationship, and periodically thereafter, the adviser would present the consumer with a ‘tariff sheet’ setting out their charges.’
Sandler also said that making payment for advice contingent on a sale tends to bias the adviser against recommending that the consumer do nothing, even if that is the best advice.
He also called for a change in the definition of an independent adviser to an adviser who is not paid by a provider. ‘The use of the word adviser should be restricted to those who meet the independence criterion. While ‘adviser’ covers a wide range of relationships, it principally carries the connotation of ‘acting solely in the interest of the client’,’ said Sandler.