The chief City watchdog’s re-think of its plans to overhaul the sale and distribution of investment products has triggered a division between different parts of the industry.

While independent advisers welcome the proposed streamlining of three tiers of financial advice into one, their banking and insurance rivals fear they may lose out. This is because most financial advisers should be able to qualify for the new single-tier category of independent financial adviser, while many bank and insurance staff dealing with investment products will not. At the moment they are mostly tied or multi-tied advisers and will thus fail one of the key tests for independent financial adviser status, which is the ability to advise on the whole market of financial products.

In its Interim Report on the Retail Distribution Review, published today, the Financial Services Authority says that it plans to simplify the blueprint for change it drew up last June.

Instead of three tiers of people giving financial advice, as originally proposed, there would be just one tier - and they would be called independent financial advisers. To qualify for this category an adviser would have to cover the full range of products and meet what the FSA terms “appropriate minimum professional standards”, which is expected to mean a qualification somewhere between A level and degree status.

Would-be savers and investors would have three distinct routes for buying financial products. The first would be to obtain advice from an independent financial adviser. The second route would be to buy products from a recognised sales outlet, while the third would be to seek help from a proposed new Money Guidance service, which would offer free generic advice on some financial products, without making specific recommendations.

What this would mean in practice is that most existing financial advisers, whether paid by fees or commission, would be able to retain their much-prized ‘independent’ label. A minority, who did not want to cover the whole product market or meet the required professional standards, would fall into the salesman category, as would existing tied advisers, including many bank staff and insurance staff.

Meanwhile it is hoped that Money Guidance outlets, to be operated by organisations such as Citizens Advice, would be able to help a large number of people who currently receive no financial advice at all. Customers would be given general advice, such as that a cash Isa might suit them, but there would be no specific product selling.

Dennis Hall, of Yellowtail Financial Planning, a fee-based adviser, said: "It is understandable that the banks and insurance companies are worried about these proposals. I can't see their marketing departments being very happy about people who were previously called advisers having to be renamed salespeople."

A spokesman for the British Bankers' Association (BBA) said: "The BBA is concerned that any proposals to curtail or ban tied advice, where a bank advises only on the range of products it provides, would force customers to choose between paying a fee for advice and using a non-advised service. This would impact most on those who may lack adequate savings or investments."

A spokesman for the Association of British Insurers (ABI) said: "The ABI does not believe it is necessary to draw artificial distinctions between advisers and so create complexity for consumers by applying different regulatory requirements to advisers of different types."

In contrrast many financial advisers, whether primarily fee or commission-based, have welcomed the new proposals, but for different reasons.

On the one hand many largely commission-based advisers are pleased they will still be able to retain the ‘independent’ label. Faye Goddard, of the Association of Independent Financial Advisers,(AIFA)said: “We are delighted that the FSA is simplfying things so that there will be just one tier of financial adviser. We also think it is sensible that advisers will still be able to be paid by commission from financial groups, provided that the payment is clearly set out and agreed by the customer and adviser.”

But other advisers think the effect of the FSA’s proposals will be steadily to reduce the role commission plays in financial advice. Andrew Fisher, managing director of Towry Law, a wholly fee-based adviser, said: “In this report the FSA has said independent advisers should operate a payment structure without any product provider input. I think it will be increasingly difficult for financial advisers to meet this requirement if they are still being paid commission.”

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