Independent - but with strings

Finding the right financial adviser, difficult at the best of times, has just become harder.

For the past 10 years personal finance writers have countlessly repeated the mantra "see an independent financial adviser". IFAs are required to search the entire market to find the best product, unlike "tied" advisers, who can only sell you the products of their company. The regulators help out, with strict "polarisation" rules dividing the two types of adviser, obliging them to tell prospective customers whether they are tied or independent.

Until last week. After a year-long enquiry into the polarisation rules, the Office of Fair Trading is now proposing a third type of adviser, the "multi-tied". This will be someone who is tied to, say, five product companies, and who will be allowed to sell you the products of those companies. In effect, it creates a new semi-independent adviser - provoking howls of protest from the IFA community.

The OFT is treading cautiously at first. The proposed multi-tied advisers will be limited just to relatively simple investment products such as unit trusts, while life and pension products will remain under the original polarisation rules.

The OFT argues that the tied/IFA divide has had no appreciable pro-competition effect on unit trust providers, so ditching the polarisation rules will cause little harm and should benefit investors. In contrast, life and pensions are more complex, and buyers are more likely to seek compensation when things go wrong. Complaints need clear lines of liability, which multi-ties cannot offer, so the OFT says polarisation should stay for complex products.

It could, though, be some time before multi-tied advisers begin their sales patter. The OFT recommendations now go in front of the Chancellor, Gordon Brown, who has to decide whether to accept or reject them. However, in the past, such as when the OFT recommended commission disclosure in 1992, and when it called for the ending of the maximum commissions agreement, the Chancellor has tended to accept the OFT's advice.

But IFAs are likely to fight the proposals tooth and nail. Trade body IFA Promotion (IFAP) says the idea of a multi-tied adviser will simply confuse investors, with the adviser using an aura of independence on unit trusts (which pay little commission) to lead unwary consumers into buying the pension plan (which pays huge commission) of the company they are tied to.

IFAP chairman Douglas Claisse says: "We worry greatly about the opportunities this seems to create to confuse the public."

One of the big networks of IFAs, the Financial Options Group, adds: "We strongly disagree that multi-ties for some investments should be allowed. The consumer still needs to identify easily the status of advisers and any fudging of this will not help."

Other advisers point out that the proposed loosening of the polarisation rules comes at the very time that the loose rules governing mortgage advice are about to be tightened up.

Even the Consumers' Association, a long-time critic of many of many financial services' practices, found little to support in the proposals.

A spokesman said: "We do not believe that multi-tying will deliver a better standard of service or advice. We're lukewarm about these proposals"

The OFT report is also unlikely to find friends in the Financial Services Authority, which will have the job of policing a new army of multi-tied advisers. Currently the FSA directly regulates the UK's 20,000 IFAs, but leaves most of the regulation of the 50,000 tied advisers to product providers. Taking on the regulation of these extra advisers will impose a big new burden on the authority.

However, the proposals have won the support of the Association of Unit Trusts. Director general Philip Warland says: "The report is radical and well-argued and potentially has profound implications for both consumers and advisers."

Other proposals in the report, such as the suggestion that investors should be made more aware that they can negotiate commission downwards, will also win support among consumer groups.

• The Financial Services Authority offers a free guide on choosing a financial adviser. Contact 0800 917331. IFA Promotion runs a hotline giving details of IFAs in your area. Tel 0117 971 1177.