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An adviser’s view

2004 was a record year for my company but, like many IFAs,I go in to 2005 looking over my shoulder, with no real confidence in the long-term future of our industry.

This may sound like doom and gloom but is there any IFA who has not transacted an endowment, a pension transfer, a split cap or even one precipice bond? Most of us have a small number of these cases on our books. In the media, we see more and more articles to encourage clients to complain and we find increasingly that the policy excess is relevant to the year of complaint, not when the product was sold. For my network, this is now £10,000 per claim for many classes of business.

We thus have the bizarre situation where one can transact a small investment, get paid peanuts and several years later get forced to compensate the client thousands of pounds for so-called misselling when, for many companies, it is not a misselling issue but insufficient documentation.

The average age of an IFA is in the mid-50s. Young people are leaving the industry. The true extent of the low opinion in which we are regarded came home to me recently when my company advertised for experienced IFAs and over half the applicants had no financial services experience. The general public would not dream of approaching a doctor’s surgery for a position as a doctor with no qualifications but they feel it is fine to approach us. I think that we need to do something about it collectively. I know we have bodies that supposedly represent us but they are not producing the desired effect. Our problem is we are, in the main, relatively small companies and the insurance companies which once may have fought our corner are increasingly occupied with their own problems.

What we need first is to recognise that unless we act to stop it, our PI costs and excesses will go up and up. Eventually into every business plan will have to be a provision for, say, two or three claims a year per adviser. I favour setting up a body funded by advisers to fight for the issues faced by advisers.

We need a clear definition of misselling which has nothing to do with 20/20 hindsight but which focuses on the client’s needs at the time the business was transacted and the suitability of the advice at that time. That body should be able to challenge cases awarded by the ombudsman. Additionally, where it is proven that the case was based entirely on the claimant’s greed, the adviser should have the right to pursue compensation. We need to discourage complaints that are not genuine while ensuring that genuine cases are dealt with fairly.

The current situation encourages anyone who has incurred a financial loss to make a claim because they cannot lose. This has to be changed.

Additionally, in law, one is normally innocent until proven guilty. Where a claim is made, the burden of proving innocence is all on the IFA and claims succeed mainly due to poor record-keeping. Poor record-keeping and misselling are not the same and this must be changed. I wrote a 24-page suitability letter last week and I know that other IFAs are being forced to adopt similar practices solely to ensure there is no way that the client could say that we had not told them every detail. This is an expensive waste of time and we will never be able to deliver cost-effective financial advice to the masses, as the Government would like, while we are burdened in this way. We need to change the burden of proof so the client needs to prove guilt. This is a basic human right.

We also need to change the calculation basis for compensation claims. We have compensation paid midway through policy terms which could mature with no loss to the client. We seem to have a position where it is always the adviser who is 100 per cent wrong and, despite all the literature that the client received, he/she is absolved from the consequences of his/ her actions. We need to get away from this blanket approach and adopt a more flexible system. Just because an endowment is projected not to hit its maturity target does not mean it will not. What will we do with the client who dumps his/her endowment only to find that if it had it been held to maturity, it would have produced a surplus? We have already seen clients compensated for pension misselling, only for the main scheme to go bust and yet the adviser has no course of redress.

To make these changes and alter the public’s perception, we need proper funding to be used for promoting positive messages of the excellent job that the vast majority of advisers perform. We need to challenge the compensation status quo. If we do not act misselling claims will rise, as will PI costs. Paying say 0.5 per cent of turnover to our own self-funded body, (an adviser’s union), could be the best investment we ever make.I would ask Money Marketing to canvass IFAs and gauge support for such a scheme.

Peter Emery is principal of Emery (IFA) Associates


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