OFT relaxes rules on financial advisers

The 10-year-old regulatory barriers that strictly separate Britain's 20,000 independent financial advisers from the 50,000 employed in direct sales forces might be abandoned following an office of fair trading report yesterday which recommends the introduction of the "multi-tied" adviser.

In a move condemned by independent financial advisers' organisations, the OFT says that "polarisation" rules restrict and distort competition and should be relaxed for some products such as unit trusts. This will allow, for example, a sales representative for a life company to offer unit trusts from a variety of other companies.

However, the distinction between tied and independent advice will remain in place for life and pension products.

OFT director-general John Bridgeman said: "Unit trusts tend to be simpler and more transparent products, and opening this market to more retail innovation should offer consumers more sources of advice and a greater selection of products." He predicts that many existing tied advisers, and some IFAs, will choose the multi-tie route.

The OFT is also encouraging consumers to bargain with advisers over the amount of commission they earn. "More could be done to make clear to investors that... it is possible to negotiate a rebate to themselves of some of that commission."

But the year-long inquiry rejected calls from consumer groups which have argued that only advisers who charge fees rather than earn commissions should be allowed the "independent" tag.

The chancellor, Gordon Brown, will decide if the OFT's recommendations should be implemented. However, the proposals may be challenged by the fledgling financial services authority, which will have the task of policing multi-tied advisers.

Tied advisers are regulated at arm's length by the FSA, which relies on product companies to keep their sales forces in line. Individual FSA registration of tens of thousands of multi-tied advisers would add enormously to the administrative burden of the FSA.

The proposals will also face stiff opposition from IFA groups, which argue that multi-tying will allow sales representatives to hide behind a mask of independence on unit trusts, then sell a high-charge pension instead.

Chairman of IFA promotion Douglas Claisse said: "This is really going to muddy the waters of advice. If a salesman is tied on pensions but can also sell unit trusts from a half-dozen different companies, which do you think he's going to promote first?

"I worry greatly that this is simply going to confuse the public, who have only recently got used to the difference between tied and independent advice."

Charles Levett Scrivener, director at independent adviser Towry Law, predicts the multi-tie concept will not survive. He said: "Multi-ties will cause such a cock-up that the regulators will soon back-pedal on this. You are going to have a situation where an estate agency has an adviser who is tied to an endowment provider, who is semi-independent on unit trusts and is unregulated on mortgage. It's nonsense."

However, unit trust sellers welcomed the OFT report, which they believe could significantly boost sales of funds.

Many medium-size life and pension companies which offer their own, poorly performing unit trusts might ditch their in-house ranges and offer the funds from top performing companies instead.

Anne McMeehan, director of the Association of Unit Trusts, said: "This could give the market a real opportunity to grow. Life companies that until now have had their own-brand funds could become wholesalers of funds from more specialist investment providers, giving consumers more choice upfront and in time potentially lower-cost funds."