The FSA may extend to other retail markets the practice of requiring advisers to justify recommending a product with higher charges compared to a more basic vehicle.
The practice is currently used in pensions under a rule known as RU64.54.
When recommending any pension other than a stakeholder, advisers must explain in writing why the policy is ‘at least as suitable as a stakeholder pension'.
The regulator rebuffed accusations in its recent discussion paper on product intervention that RU64.54 has a negative market impact by creating a price cap that has dragged down pension sales.
It says it may extend the practice to other product areas, potentially forcing IFAs to prove in writing why a more expensive product is better for a client than one with lower charges.
The discussion paper (DP11/1) reads: "It would still be possible to sell more expensive products where there is a demonstrable need, but it would set a benchmark and encourage greater assessment of the value for money of propositions.
"We are not saying that low charges are always best for all customers; however, we consider that a customer's interests are generally best served where they receive a product that meets all of their needs and objectives at the lowest price."
The DP goes on to explore how the concept would sit within RDR proposals for adviser charging.
The regulator suggests this system of benchmarking could "apply to the product charges before adviser remuneration is added, incentivising providers to compete on product charges and for advisers to hold them to account".
Jennie Kreser, pensions partner at Silverman Sherliker, says for the majority of consumers, the standard product is the most suitable.
However, she adds: "For the more sophisticated investor or high net worth individual, being forced to justify not recommending a stakeholder pension is simply daft. The same would go for other basic products."
Tom McPhail, head of pensions research at Hargreaves Lansdown, warns against over-reliance on benchmarking: "Benchmarking has a place in assessing the quality of products and advice but it should not be seen as a one size fits all solution.
"The risk is that benchmarking on its own would fail to take account of broader considerations such as the individual needs of an employer or individual.
"Stakeholder pensions have served a useful purpose in curbing the worst excesses of charges levied by the advisory and investment community; however they do have their limitations."
The deadline for responses to the DP is 21 April 2011.
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