Ed Balls has weighed in on the debate over IFA commissions by offering his support for Financial Services Authority's review of distribution but suggesting most financial advice is "about selling products".
In his address to the Association of British Insurers (ABI) Saver Summit yesterday, the economic secretary to the Treasury said he welcomed the FSA’s review of the distribution model and supported Clive Briault, managing director of retail markets at the FSA in his assertion that the current business model “does not work well”.
Balls said: “Advice should be the bridge between consumers and a complex market. As Clive noted, however, the current business model does not work well. I very much welcome the FSA’s review, particularly its broad scope and willingness to tackle some difficult questions. I look forward to hearing the conclusions and to seeing the financial services industry take the initiative.
“However, the FSA’s review will not provide a solution for customers on low, even middle, incomes that cannot afford to pay for advice. Most financial advice is about selling products, and the incentive is to sell to wealthier consumers. Independent advice is available, but at a price many cannot afford. Meanwhile government help goes currently – and properly – to those on very low incomes or in financial distress.“
But Fay Goddard, deputy director general at the Association of IFAs, criticised Balls for sending out mixed messages about financial advice.
“We first need to be clear about what we are talking about. Generic advice is about helping people understand their financial needs more we support the concept of generic advice. The next step up from generic advice is a more holistic approach which could lead to the sale of a financial product but may not and that is what most IFAs do,“ she says.
“Then there is the sale of financial products which is itself another separate step so in terms of financial advice there could be several different approaches to advice and there are lots of different approaches to advice in the marketplace. I think it’s wrong to categorise advice in the way Balls has.”
Goddard says she expects the FSA’s review to be extremely wide in scope and says the regulator has provided assurances to AIFA to that effect.
“We have had assurances the whole scope of the advice model will be examined. You can’t just pick on one sector there may be different issues in different parts of the community but we have to look at each part of community we do not expect the FsA to exclude any one distribution model from its review,” she adds.
Balls also announced yesterday the government intends to allow savers to transfer their funds from cash ISAs into stocks and shares without it affecting their annual limits.
He said by removing this restriction the government intended to further promote share ownership by encouraging savers to diversify their assets and benefit from the potentially higher returns offered by stocks and shares.
The announcement follows earlier announcements from the Treasury regarding the future of ISAs in which Balls confirmed the government wanted to build on the success of the savings vehicle by continuing to allow providers to offer the product indefinitely and by removing the mini/maxi distinction.
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