Finding the right framework for the retail financial services market is a constant struggle for government and regulators in the UK.

Twenty years ago, polarisation created the concept of independent financial advice and since then independent financial advisers (IFAs) have grown in importance as a distribution channel for savings, investment and protection products.

Since the late eighties though, the regulatory landscape has changed massively, from self-regulation to the PIA (Personal Investment Authority) and now the Financial Services Authority (FSA), which spans the retail and institutional markets.

Despite the success of the IFA channel, or perhaps because of it, the FSA has decided to reform the UK retail market through the Retail Distribution Review (RDR).

The FSA’s stated aim is that the current system does not work efficiently and has put forward several reasons for this.

One is that remuneration-driven sales, whether by commissions or incentives, lead to inappropriate advice and/or product churning.

Another concern is the fact that the results of poor quality advice could take some years to come to light.

The FSA also expresses its reservations over the facts that many consumers do not have access to financial advice, while those providing advice may do so despite receiving little training and testing compared to other professions.

As a result, in disclosure paper DP07/01 issued in June 2007, the FSA suggested that regulated investment advice could be split into professional financial planning and advice and more straightforward primary advice.

A third tier of unregulated generic advice, underneath these two options, might be created by the Thoresen Review, the FSA thought.

Now, in its interim statement on the RDR, the FSA has heeded calls for a simpler landscape, with ‘advice’ and ‘sales’ being the two channels for product distribution.

These two channels could co-exist with money guidance, or a national information and guidance service for consumers proposed by the Thoresen review in March 2008.

Under the ‘advice’ banner, it is proposed by the FSA that there is just one type of adviser and that they should be independent.

They would select products from the whole of the market, independently of remuneration offered by product providers, and they would meet certain minimum professional standards.

In contrast, under the ‘sales’ banner, a simplified guided sales could guide consumers towards suitable products, in the interests of encouraging higher levels of savings and protection.

Here, it seems, lower standards could apply, with products being chosen from a limited range and with less expertise among salespeople.

At first sight, this approach looks like applying higher standards to the independent financial adviser (IFA) market, while permitting a less demanding regime for what are termed the bancassurers – banks and other institutions selling a limited range of savings and protection products.

This approach might not seem particularly edifying but it seems to fit with what many people see as the quid pro quo at the heart of the RDR.

This can broadly be summarised as the financial services industry – that is, the life and pensions providers – agreeing to clean up its act in return for being given greater access to sell products to the mass market in the UK.

Such a deal would suit the life and pensions providers very well.

Collectively, they would happily stop paying large, upfront commissions to IFAs for product sales, because this is driving them towards bankruptcy.

Individually, it is very difficult for life offices to stop paying commissions, as they will lose sales to their rivals and existing business models are based on it.

However, if the FSA effectively abolishes excessive initial commissions, then the product providers are saved the trauma of coming off initial commission voluntarily as their main means of encouraging advisers to distribute their products.

It is still early days in the creation of a new framework under the RDR and a number of issues need to be resolved.

The really well-off will always get good advice, if they want to pay for it, but will the new approach suit the mass affluent and others wanting financial advice?

How many financial advisers will be able to make the move to the type of full independence proposed by the RDR?

How will they be remunerated without any product provider input – will sufficient numbers of people pay fees, or will standard rates of renewal commission be instituted?

How will the guided sales process work and will it really work efficiently for product providers and at the same time to the benefit of consumers?

Could the mass market sales channel work at cross-purposes to the money guidance initiative and moves to increase financial literacy?

There are still a large number of questions to be answered, but the shape of the UK financial services market post the RDR is perhaps a little clearer.

The aim to creating a simpler landscape should also be welcomed, although as recent reforms to pensions have proved, simplification in financial services can be something of an oxymoron.