In January 2002 the FSA published CP 121 ("Reforming Polarisation: Making the market work for consumers"), proposing that independent financial advice should in future be remunerated on a “defined payment” basis: ie a fee agreed in advance with the client. The expressed rationale was to remove the potential for commission bias. Many commentators - including the Consumers Association - considered this would markedly reduce the availability of independent financial advice and effectively drive IFAs into a niche market. As it is still widely believed that financial services products are sold rather than bought, and surveys have consistently shown that only a very small minority of consumers are prepared to pay a fee for advice, asking for a fee up-front would hardly seem to enhance the prospect of a sale.

However, many in the industry were sceptical whether CP 121 represented a genuine consultation, viewing it more as a declaration of intent by the FSA. Alert to the threat, the Association of Independent Financial Advisers in conjunction with IFA Promotion has succeeded in persuading the FSA, it announced yesterday, of a better way forward - to the credit of all concerned. Instead of the original defined payment proposal, the FSA will now develop AIFA’s idea of providing consumers with a “Menu” of options. This could be used in all distribution channels.

The Menu document would, it is proposed, set out

• An outline of the services the adviser is offering
• For independent advice, the option of paying by fee and a fee scale
• Where offered, the option of paying by commission and, for a range of popular products, the commission that the adviser normally charges, set alongside average rates charged in the market.