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Aifa blasts Consumer Focus pensions switching report

Aifa has attacked a report from the Government-funded Consumer Focus watchdog which criticises IFAs’ use of trail commission and pensions “churn” ahead of the RDR.

The report, published today, says trail commission, unnecessary pension switching, excessively high costs and charges and opaque pricing of new and old products will pose “significant problems” post-RDR.

However, the report draws on research from just 31 client cases over a 10 year period between 2000 and 2010.

Consumer Focus chairwoman Christine Farnish says: “Too many consumers are being persuaded to switch their pension into different products which may well leave them worse off.

“Others are signing up to paying trail commission to their adviser for the life of the product, which may be decades, without receiving any tangible benefit.”

Aifa director of policy Andrew Strange (pictured) says the report adds “very little new information or analysis” to the debate on the provision of financial advice.

He says: “The provision of financial advice and development of the IFA sector is very important to customers. This report unfortunately adds very little new information or analysis to the debate.

“The report appears to be very thin on evidence to back up some of their claims, which are based on a great deal of conjecture and speculation and undermines the conclusions they draw.

“Extrapolating industry-wide conclusions from only 31 individual examples of advice, for example, is not robust research. There is also no attempt to assess the value of advice given.”

ABI director of life and savings Maggie Craig says: “Consumer Focus is a little behind the pace with this report.

“The ABI has strongly supported the RDR from the start, and we want it to be implemented on time precisely because it will help customers know exactly what they are paying for when they buy financial products.

“The industry has done a lot of work to make sure customers understand the way that charges work.”

Hargreaves Lansdown pensions analyst Laith Khalaf says: “I’m not sure what this report adds to the debate because the FSA has addressed a lot of the issues it highlights already.People need to get value from trail commission, but I do not think trail commission is a bad thing per se. It isn’t as black and white as Consumer Focus are presenting it.”

In October last year the Government announced that Consumer Focus would be abolished and that some of its functions were likely to transfer to Citizens Advice.


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There are 25 comments at the moment, we would love to hear your opinion too.

  1. Martin Bamford 20th July 2011 at 8:10 am

    Isn’t it about time for us all to stop attacking the methodology behind reports and focus on the consumer? There is clearly evidence of some advisers using the window between now and the end of next year to secure additional trail commission without any intention of providing ongoing service. Rather than attack the findings, why doesn’t AIFA propose solutions and do something positive to improve the collective reputation of retail financial services?

  2. A bit suspicous that this report is published just as the Treasury Select Committee is pushing the FSA to delay RDR.

    Once again we have a focus on cost. A tin of supermarket own brand beans cost less than a tin of Heinz. I know which I prefer.

    The statement that is used is flawed:
    “Too many consumers are being persuaded to switch their pension into different products which may well leave them worse off.”

    The key point is may but they have missed out or “may leave them better off”.

    The problem is that people want IFA’s to look at their pensions and make recommendations without paying them. I have often quoted a fee to potential clients to review their existing pensions only to never here about them again.

    What this report doesn’t say is what the actual reasons behind the switch were (consolidation, better fund choice etc) and whether the costs were compared so the client was fully aware of the situation.

    I also find the use of the word persuaded as though we use some sort of voodo magic to hoodwink clients into switching pensions into other products. Once again someone with a gripe against the financial services industry is given the opportunity to voice their opinion using my money (I am a tax payer as well dont forget).

    I also agree with the comments from AIFI that using 31 examples is not good practice – have any of these people ever done statistics as from my knowledge the use of such a small number would make the results void.

    Typical Quango trying to justify its role I think. If they know the job so well why aren’t they out there doing it.

  3. The chief exec of Consumer Focus has a pension ETV of £406,000.

    No risk of trail commission though – it is of course a final salary scheme paid for by the tax payer!

  4. Firstly this old apple of placing the consumer first is a total misnomer. The majority of IFAs place their clients (their very own consumers) first on a regular basis.

    As is so often the case a few advisers appear to be carrying out activities that may or may not prove to be biased. Is it the commission system or is it the lack of ethics and scruples?

    Such a small sample immediately casts doubt on the validity of the comments and appears to be a headline=grabbing opportunity, which of course is exactly what has happened.

    Equally, the efficacy of the analysis must be challenged because we all know that within months the FSA will attempt to use the ‘research’ as a validation for the RDR and any other intrusions it feels like making.

  5. What the report should have said is that personal pensions are an immoral disgrace. What they should have pointed out is that millions of people in this country have be conned into giving away millions of pounds in return for a paltry income, enhanced a little over standard rates because of the facility of utilising some of the money of dead people. I call for a general amnesty. Let everyone who has put money into a private pension be given the opportunity to get their money back (less tax).

  6. 31 of my clients have a holiday home abroad, therefore they must all be filthy rich.

  7. if I was a sceptic I’d say the FSA had got them to push this report out to justify RDR!!

  8. “Isn’t it about time for us all to stop attacking the methodology behind reports and focus on the consumer?”

    Martin, you don’t work for the climate research department at the University of East Anglia by any chance?

  9. Given that the FSA’s RDR roadshows are apparently confirming that adviser charging will NOT in fact be possible on pensions business post 2013, on new business or where changes are made, doesnt it actually encourage clients to make adjustments prior to that date so that advice charges can come from their pension funds rather than have to be paid as fees out of their non pension savings?
    Defenders of RDR have often said that clients will NOT have to pay fees, ie can use advice charges – well it appears that is now being confirmed NOT to be the case for all pensions post 2013

  10. Some advisers have been ripping clients off for years with Trail and until the system is modernised come RDR it will continue, nothing new there. Trail is an integral part of the adivce procees, nothing wrong with trail payments if its paid for an agreed service. Pensions are the rip off and their funding and eventual annuity/drawdown has to have a complete overhaul to make them attractive again, as for regular conts pensions – I don’t do ’em any more, no value, no reason why, lump sums or nout.

  11. Here we go again. Obviously we IFA’s should be giving free advice.

    We take trail commission on our Wealth Management platform but for that the client gets quarterly reviews, valuations and portfolio advice and monitoring.

    Its not about the effect of charges its all about the difference advice makes to the long term results. many client we meet have been in dormant or dog funds for years.

    IFA’s add value.!

  12. To Paul Harding,

    Pardon, where did this news come from, can you refer us to a report please?

  13. Another Pissed Off IFA 20th July 2011 at 10:05 am

    All this nonsense about charges is just the ammunition the Left has learned to throw at the industry because they have discovered that it falls readily to hand and it makes them look good – as they fight for the ‘KonShoomer’.

    Common sense says that it is performance AFTER charges that matters. But common sense is in very short supply amongst the trendy left who have also learned how to rig the system for their own benefit – as in public sector pensions.

    It’s about time we had an investigation into how the Left has manipulated and exploited their way to such cushy posts at our expense.


  14. At various times we have consumer groups attacking initial commission then trail commission. When an adviser decides to take trail commission as his remuneration for arranging the product to avoid criticism on initial commissions then he finds trail commission under attack. Any consumer group could claim that consumers might be better of if we worked for nothing. Its good that AIFA and any other grouping of IFAs defend our right to work without constant criticism from organisations who try to justify their existence. It is conveniently forgotten that for years now FSA have insisted that illustrations show all commissions. How many of us field queries from clients from years ago when we only had an initial commission for transacting the business and we do this for free. And how can anyone claim to have clear evidence that trail is increasing knowing those clients are not going to be serviced ? or that trail is not replacing initial ?

  15. Trail commission should be banned – when it is paid to the Banks. They never have and never will service their clients because they push, push, push for new business. There is a permanent divide in Financial Services in the UK. On one side IFAs who, because they value their clients, do actively service their needs , and hence receive trail for doing so. On the other, the banks, who – yes – effectively defraud their customers (and I use the term specifically as opposed to clients), by not providing a service for which they receive payment from the provider.

    Does anyone in the FSA know what TCF means, or do they really care?

  16. I see at least one consumer benefit. Those advisors that have income stay in business and answer the phone in the future. So it’s wrong to say there is no consumer benefit.

  17. David Patrickson 20th July 2011 at 10:54 am

    Paul Harding

    “Given that the FSA’s RDR roadshows are apparently confirming that adviser charging will NOT in fact be possible on pensions business post 2013,”

    At the RDR Roadshow in Leeds the presenters were asked about adviser charging being taken from pension plans and they categorically stated that this would be allowed.

    Was this contradicted at the roadshow you attended?

  18. It may be worth remembering that Consumer Focus is also under threat of closure. We saw a significant increase in published activity from the FSA when it became obvious that they would be under pressure from a new political master. Are we now seeing yet further publicity stunts to justify the continued existence of a Quango?
    As has been pointed out by others the methodology here stinks. Apart from the lack of numbers to make the report statistically significant there is no tie in between the cost of providing a service and payment for it.
    As everyone is saying it is easy to generate bad headlines. Headlines are not always true, but they do have an effective on those who read headlines and little else. So Consumer Focus is spreading bad feeling about pensions to the general public without being able to demonstrate that the problems are either universal or even genuinely true. A brilliant strategy as Auto-Enrolment comes on line.
    The whole of the Financial Services Industry is now being run on myths. Even the apparently supportive statement from Maggie Craig is a continuance of the hot air around RDR “because it will help customers know exactly what they are paying for” – if anyone really believes that will be a true and beneficial outcome of RDR they are genuinely from Venus. Cost statements have been handed to clients for 20+ years.
    And what is the overall outcome of these dodgy pronouncements – the public are re-enforced in their attitude that pensions are a rip off, so there is no point in saving in them, thus exacerbating the pension crisis. They will treat financial advice with suspicion and thereby take even greater risks with their home made strategies.
    It would be wrong to hide from genuine criticism, but the Government needs to ensure that it has control of its own outlets to ensure that such negative statements are based on solid fact, not merely the prejudice of the issuing body, and that they are consumer beneficial and not Quango publicity generation material. A report based on such flimsy evidence demands the immediate closure of such a amateurish body.
    It is good to see Aifa taking a stance at long last, but one hopes that they can take their message to someone of importance rather than just the in-house press.

  19. @ Roger and DAvid
    Yes, it was at the RDr roadshow yesterday at the FSAs offices. I did not attend but my colleague said this was stated not once but twice, including after the event when he wished to clarify with the individual who had said it.
    There is obviously some confusion – I think the best thing is to clarify with FSA direct because it clearly is NOT what many of us had believed would be the case.

  20. So, Paul Harding didn’t even attend the RDR Roadshow – but found out from his “mate” down the pub !!! — Get your FACTS straight !!!!!!!!!

  21. David Patrickson 20th July 2011 at 11:46 am

    Paul, Roger

    This does seem confusing. I have requested clarification from the FSA and they will endeavour to respond to my query within 12 working days. If you would like me to update you when (and if) I get a reply drop me an e-mail :

  22. Antonio,
    Thank you so much for your helpful addition to this. Fwiw, it was my co-director, attending on our firms behalf, who both heard it first hand and reconfirmed it afterwards and then passed on the results of the meeting to his co Directors this morning as the FSA would no doubt want.
    And although he is my “mate”, we weren’t down the pub!

  23. At the risk of causing rising blood pressure across the industry, check out the Independent and the Daily Mail on the subject of the Consumer Focus report. Really constructive, balanced journalism, rich in facts and beneficial to all who read it. The comments following are cheerful light reading too. I doubt that there are enough lamp posts in the UK to hang us all off fortunately. Now I know how the Murdochs felt yesterday, except to the best of my knowledge, I haven’t done anything wrong and I’m not a billionaire, although Consumer Focus obviously think I am.

  24. Huw
    Daily Mail……….Really constructive………….balanced journalism

    If only!

  25. There has long been a view that all IFA’s need to move away from a transactional model to one that will provide long term value to clients and therefore the business.

    Whilst this report is wrong on many points, and contains a number of spelling mistakes, it does remind the industry and consumers that more needs to change.

    I think the industry still perceives itself to be in the 1980’s when one sale per week paid the wages, only now that’s not the case. Since 2006 when the RDR was first promised far too many firms have done a lot less than they should have, and are now squealing.

    There is a market for Financial Advice and some consumers will pay, the job for all IFA’s is to find them, add some value and charge accordingly. Until then there will be report after report about charges and commission et al. Simply because this is what the regulator and many consumers believe and it’s an easy sell for them.

    You will of course notice that the Pension churn by many of the High Street firms (a lot of which are effectively state owned) was missing in this report. Don’t be surprised at that, but don’t let that point hold you back from making the changes you require in your business now.

    My thinking is that come 2013 there will be a lot more business around for lots of reason you just have to position yourself and take advantage.

    Richard Smith – IFA Marketing Expert at

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