Advisers and financial journalists must support each other more in our different roles. After all, we both exist for the same reason
Why do financial journalists exist? I am sure that it is a question many IFAs ask, especially when they read things they think are wrong, dangerous or fail to end with “find a good, qualified financial adviser”.
I hate to say it but we exist for the same reason you do: we make our living explaining the complex world of finance and advising people what to do.
I learned my skills decades ago explaining the complexities of tax, benefits, mortgages, investments and so on to a readership which could not afford to pay for an accountant or adviser.
Not that there were any back then. The man from the Pru was the closest most people got and, of course, if you were rich, there were stockbrokers – the people who invest your money until it is all gone.
But that was about it. This was the 1970s, before advisers had been invented.
On 20 November 1973, the first comprehensive guides on money matters for pensioners were published by Age Concern. I was one of the people responsible for that revolution.
Your Rights explained the state pension as it was transformed by Labour’s Barbara Castle into a complex earnings-related benefit, and the special tax allowances for pensioners, married couples and people with children. Then there were new disability benefits and war pensions. Explaining, clarifying and, yes, advising became my speciality.
In the 1970s, The Times had a half-page Saturday finance column, mainly about investments and shares. Tax, benefits, fees and mortgages – personal finance – did not feature often. But they did by the 1980s, which is when I gave up my job and began writing for newspapers and magazines.
It was 1986. Nigella Lawson’s dad was chancellor and Prime Minister Margaret Thatcher had not yet been ousted by the men in grey suits. Over the next two years, they created the personal pension, with a big bribe from diverted tax and National Insurance. Then they created the financial services industry.
It got to work at once sending teams of poorly trained, commission-driven sales staff to descend on a hapless population who believed government TV adverts about throwing off their chains and were willingly missold £11bn worth of personal pensions.
A decade later, the industry had to spend £2.5bn finding two million people to repay the £11bn they should never have put into their pension pot in the first place.
It took financial journalists a little while to realise the con that this was. Then the Big Bang, the demutualisation of building societies and the start of regulation overlaid with complex tax changes created fertile ground for a new form of personal finance journalism. Often sceptical, sometimes not enough, it reported on the new industry and advised readers on the growing financial complexification.
Another new profession was born at that time: the financial adviser, tied or independent. Financial journalists quickly learned the former was bad and the latter good.
There was, however, a cancer at the heart of this new industry. Commission. The financial interest of advisers was to sell us stuff, and the riskiest stuff usually generated the most commission.
In that quarter century, share prices rose on average by 12 per cent a year, so commission and high charges could be snaffled from clients’ money without them caring or even noticing through the fog that hid the details, which is still to fully clear.
Thirty years on, we are back where we started. Commission-driven sales people – the introducers – and some advisers are embroiled in the familiar conflict of interest caused by charging a fee contingent on recommending people to transfer a guaranteed pension for life into one subject to the vagaries of the stock market. That is if they are lucky. Eco-apartments in Costa Rica planted with sustainable trees are very popular, I believe.
FCA research on pension transfers found only a quarter of the products recommended by the 88 firms it went to see were suitable. A third were unsuitable. It found less than half the advice to transfer was appropriate.
The regulator is considering banning contingent charging “given the potential harm to consumers” by this “irreversible decision”. It has restated its view that “in most cases… the right outcome will be for the customer… not to transfer”.
It was this conflict of interest which led to the FCA banning commission on pension deals in 2012. Six years on, conflicts of interest are back big time.
It is up to us journalists to warn people of the dangers of leaving good final salary schemes. And, of course, up to the good IFAs – like the ones who went to Port Talbot to give pro bono advice to steelworkers, ripe for bamboozling with the promise of sums worth more than their house. Many of them are now claiming from the Financial Services Compensation Scheme. The cost of that is being paid by the good advisers – the ones who read Money Marketing.
I spend my time explaining things and advising people. Claim marriage allowance – up to £900 backdated; flight delay compensation – up to £520 per passenger; power of attorney refunds – £316 per couple. Kerching, kerching, kerching. I also warn them about expensive mistakes, frauds and investments more dangerous than a fixed odds betting terminal.
Advisers and financial journalists inhabit the same world and we should be supporting each other in our different roles. I recommend people seek good, independent financial advice. It is about time advisers recommended people read good, independent financial journalism as well.
Paul Lewis is a freelance journalist and presenter of BBC Radio 4’s ‘Money Box’ programme. You can follow him on Twitter @paullewismoney