The UK financial regulator, issuing new proposals for improving retail financial advice, said it wants to raise the minimum qualifications wealth advisors must have and clarify how financial planners charge clients for their services.

However, the Retail Distribution Review by the Financial Services Authority drew a mixed and in some cases, critical response from financial services lobby groups worried about the impact of potential higher regulatory costs during tough economic conditions.

The FSA outlined proposals it says are designed to boost confidence in the retail investment market at a time when big falls in financial markets and bank failures have rocked confidence in the market and the quality of advice investors receive. It intends firms to put changes into effect by 2012.

The Association of Independent Financial Advisors, responding to the report, said the proposals "perpetuate historic flaws in financial services. Most importantly, consumers want clear blue water between those who are on their side and those who have an obligation to sell a product". 

AIFA said the proposals will pile added costs onto advisors.

The FSA proposals include drawing a clearer line between independent advice and sales advice; requiring independent advisors to agree costs of advice with customers up-front and creating a new standard for independent advice to remove bias.

In addition, the FSA wants to raise professional standards of all advisors by setting minimum qualifications and establishing what it called a Professional Standards Board.

“The RDR proposals provide a golden opportunity to regain consumer confidence and trust in the financial services industry,” said Jon Pain, FSA managing director of retail markets.

“We believe there has never been a better time to foster more confidence in the industry and provide consumers with real help and advice to empower them to use savings and investments products more often."

The FSA will be consulting on policy proposals for the RDR during the first half of next year with the intention that all firms will have implemented the changes by the end of 2012.

In parallel with the RDR, the FSA has also been reviewing the prudential requirements for personal investment firms and will publish a consultation paper on raising the minimum standard and improving the quality of capital and making it consistent for all firms.

The Investment Management Association, which represents much of the UK-registered investment fund industry, gave a lukewarm response to the report.

"The latest proposals are, though, a mixed bag. We remain concerned whether consumers will understand the concept of sales advice. It is important that any new standards or restrictions be embedded in rules, that those rules be applicable to all sectors, and that they apply appropriately to firms that are providers or distributors or both,” said Julie Patterson, IMA's Director, authorised funds and tax.

Towry Law, the UK wealth advisory firm, said it welcomed the RDR. “We have argued that professional standards need to be raised and the practice of independent advisers being paid by product providers abolished,” said Andrew Fisher, the firm's chief executive.

“For the first time, the cost of commission-based advice will be explicit and be clearly deducted from clients’ investments."

AIFA, however, was unimpressed: "At a time when IFA firms, like other small businesses, are struggling to cope with the economic turbulence it is deeply distressing that the regulator is proposing to disproportionately increase firms’ capital requirements.

"The FSA states that it wants a simpler landscape for consumers but we are disappointed that it has failed to deliver this clarity. Consumers trust Independent Financial Advisors and we are disappointed that FSA has bowed to pressure from the banking and insurer lobby to allow their sales people to still call themselves advisors".

The Association of Private Client Investrment Managers and Stockbrokaers said it "broadly" welcomed the RDR report but had some reservations about the potential costs involved.

"APCIMS welcomes the professionalism and remuneration proposals. Our members have a long history of providing highly qualified services to their clients and we welcome raising the standards across the whole of the Financial Services sector to match this," said Ian Cornwall, director of regulation for the trade group.

"On the detail the Professional Standards Board firms will be nervous that the FSA is constructing an additional regulator," Mr Cornwall said.