In all the hysteria surrounding the death of Michael Jackson last week, private investors could be forgiven for failing to appreciate the significance of another, much less well-publicised event which took place in the financial world.

But the proposals contained in the Retail Distribution Review - the chief City watchdog’s study of the way investment products are sold - are set to rock the financial services industry to its foundations.

The RDR plans to outlaw the payment of commission by product providers to financial advisers as an inducement to recommend their products. From December 2012 there will have to be a clear separation between charges for a product and charges for advice. The moves represent a dramatic shake-up of an industry where about 80 per cent of advisers’ income comes through commission. Product providers, such as insurance companies and unit trust groups, will have to strip out the inbuilt commission embedded in many of their products. Meanwhile the advisers themselves will need to prepare for a massive switch towards fee-based advice.

The proposals should remove many of the distortions which have bedevilled the financial services industry for many years. Financial advisers will no longer have a financial incentive to recommend some products, such as investment bonds, which have typically paid as much as 7 per cent in upfront commission, rather than other products, such as investment trusts, which typically pay none.

Investors who wish to deal direct with organisations such as unit trust groups, without the benefit of an adviser, will, in future, be spared the current ridiculous position where they are obliged to pay inbuilt charges for ‘advice’ they do not actually receive.

But although consumers can look forward to a much more level playing field in future, there are many voices in the financial services industry who doubt whether the changes proposed will be as beneficial as the authors of the RDR hope.

Their doubts focus primarily on whether large numbers of private investors will be prepared to pay for fee-based advice, when such advice may cost upwards of £100 an hour. They have a point and it will certainly be difficult to persuade a large number of people that fee-based advice is something worth paying for when they have got into the habit of thinking that financial advice could be obtained for free.

But the existing, largely commission-based, payment structure was ripe for demolition. The removal of financial inducements to recommend some products rather than others is a positive thing in its own right and should hasten the end of the sort of commission-driven mis-selling which has been all too common in the past.

It may be an uphill battle to persuade private investors of the merits of fee-based advice. But it is a battle worth fighting. If the RDR’s proposed measures reinforce the point that good financial advice does have a price that will be a message worth getting across.

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