Clear split between financial sales and advice could boost consumer trust

Consumer trust in financial services institutions could be dramatically increased if there was a clearer demarcation between financial sales and advice, according to a report from the Association of Independent Financial Advisers (AIFA).

Research conducted on AIFA's behalf by YouGov found that 8 in 10 (81%) people believe that knowing whether you are being sold a product or advised on one is important to build the level of trust in banks, building societies, life companies, IFAs and other financial organisations. AIFA firmly believes that increased trust would lead to more people re-engaging with financial organisations and subsequently saving and investing for their future.

AIFA will be sending its new report - ‘Consumer Trust in Financial Services' - to the Financial Services Authority (FSA) and the Treasury urging them to make the distinction between sales and advice clear in the Retail Distribution Review (RDR) statement expected in October.

Chris Cummings, Director General of AIFA, said: "Consumers deserve to know who's on their side and acting in their best interests, and who's just there to sell them a product. We believe that the benefits to the consumer in offering absolute clarity of whether a firm is ‘agent of the client' or otherwise will go a long way to restoring trust in the sector. We call on the Government and regulator to make the distinction crystal clear."

74% of adults agreed or strongly agreed that making consumers aware of whether they were being sold a product or advised to buy one was a good idea, with only 5% disagreeing

When considering purchasing a product, 60% of people would be likely to purchase products with ‘product information' only and take responsibility for the buying decision

80% of respondents who took out a financial product in the past 3 years with an IFA, were confident they considered their personal circumstances above anything else (compares to 60% of those who took out a financial product in the past 3 years with banks)
86% of adults who had dealings with IFAs in the past 3 years rated their services as fairly good or extremely good

78% of those questioned trusted IFAs to treat them fairly (compares to 73% for banks)

12% of those consumers who had not engaged with a FSI in the previous three years directly attributed this to a lack of trust in the sector

AIFA's research follows findings from IFA Promotion (IFAP) showing a 50% increase in the number of people seeking independent financial advice and figures from the Council of Mortgage Lenders (CML) showing that the number of first time buyers using an intermediary has risen to 82.5% in the first quarter of 2008.

Chris Cummings added: "As the IFAP and CML statistics show, consumer demand for IFAs tends to increase during turbulent market conditions. But there's still a large percentage of consumers who don't understand the difference between different types of sales and advice. The RDR offers the perfect opportunity to encourage re-engagement with the industry and improve their financial well being."