Britain’s financial services regulator has set strict new rules for the use of the term ‘independent’ by financial planners in a move that could create a two-tiered division of the country’s investment advice market.

In the first published paper of its retail distribu­tion review project in July, the UK’s Financial Ser­vices Authority (FSA) said that the industry might be split into two: professional financial planning and advisory services and primary advice. Only “highly qualified advisers serving those consumers who need the full range of advice” would fit under the professional financial planning category, which the FSA suggested could encompass two types of advisers.

“The most highly qualified could agree their remuneration directly with the customer and not with the product provider, as is often the case with commission now. They could then call themselves ‘independent’,” the FSA said. “Those firms not meeting these conditions might wish to use pro­vider-driven remuneration (i.e. commission), but if they did they would not be able to call themselves independent.”

The second type of adviser, the primary advice category, would only cover ‘straightforward needs’ and ‘simple products’. “This advice could be less costly and more easily explained to a consumer than full professional financial planning and advi­sory services,” the regulator said.

David Elms, chief executive of consumer group, said the FSA’s decision to intro­duce harsh limits on the use by advisers of the word ‘independent’ was “a victory for common sense”.

“ welcomes the FSA’s apparent clarification that the term independent will only apply to those advisers offering the gold standard of advice by choosing the most appropriate product for their clients from the whole of the market,” Elms said in a statement.

While the UK Financial Services Consumer Panel also supported most of the FSA’s proposals it also called for commissions to be banned.

The new FSA rules are due to take effect this November.

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