The UK’s Financial Services Authority is contemplating the idea of dividing the regulated retail investment market into two basic models, with the objective of giving choices to firms and greater clarity to the consumer.

Under the proposals, only fee-based financial advisers could hold themselves out as being independent. The proposals come in a discussion paper published today as part of the FSA’s Retail Distribution Review. It represents ideas from the market and consumer representatives involved in the RDR and follows six months work to address the root causes of persistent problems in the retail investment market.

“The ideas seek to improve the current standards of professionalism; find more cost-effective ways of making advice available to a wider range of consumers; and improve consumer understanding of what they are getting for their money,” the FSA said.

The paper proposes that “professional financial planning and advisory services” could be offered by highly qualified advisers serving consumers who need the full range of advice. Within this segment, there could be two types of adviser: the most highly qualified could agree their remuneration directly with the customer and not with the product provider, and they could then call themselves ‘independent’; advisers that use provider-driven remuneration (aka commissions) would not be able to call themselves independent. For this second group, the FSA would then seek to address the risks of lower professional standards and potential conflicts of interest through increased regulatory requirements.

The other class of firms could offer “primary advice”, providing advice on more straightforward needs using simple products. This advice could be less costly and more easily explained to a consumer than full professional financial planning and advisory services, the FSA said.

“We welcome the strong engagement and commitment shown by the market on this issue over the last six months. Tackling the root causes of the problems within the retail investment market is a challenging and complex issue and is not something that can be solved overnight. The proposals from industry, consumer groups, trade and professional bodies set out in our paper today have considerable merit and are worthy of further exploration and debate,” said Clive Briault, managing director of Retail Markets at the FSA, in a release.

“To move this ahead, continued engagement is vital. The major changes that have been proposed could have many consequences for the market and a full and lengthy debate during the six month consultation period with consumers and industry is required. We will play our full part in continuing to facilitate and enable market-led change. Once it is clear that significant benefits can be achieved, this will be reflected in the final proposals,” he added.

The Retail Distribution Review was launched in June last year by the FSA chief executive John Tiner. During the discussion paper’s six month consultation period, which ends on December 31, the FSA will be actively seeking the views of industry, consumers, professional and trade bodies. As well as undertaking further research on the impact of the ideas in the paper. The FSA aims to publish a feedback statement in the second quarter of 2008.