I wish more IFAs were boring. Boring is good when it comes to delivering financial advice.
Recently, we have relished our boring approach to investment advice. By keeping things simple, we have been able to avoid the exciting funds which have failed so spectacularly.
If only more IFAs had stuck to traditional investment funds rather than pushing the next new thing, it would have almost certainly saved us the cost of our FSCS interim levy earlier this year. More importantly it might have helped to improve, or at least reduced the damage to, the reputation of the IFA sector.
The delivery of good financial advice should never be dull but the best advice solutions usually are. Paying off debt, keeping money in cash or switching a few funds within an existing pension plan are often the best course of action. They are rarely the exciting or remunerative solutions an adviser would want to deliver to their clients.
When we read FSA reports of compliance failures around inappropriate investment advice, it always prompts the question ’why?’ What motivates someone to leave the well-beaten advice path in order to recommend funds that could best be described as esoteric? What possesses an otherwise intelligent individual to think a brand new, complex investment fund is ever a good idea?
It’s often suggested that commission plays a role in this wacky decision-making process. Plenty have argued that the commission levels on unregulated funds or structured products are not substantially higher than that available from mainstream funds. Therefore it seems that the desire to impress clients is the root cause of bad investment advice.
In an environment where interest rates on cash are so low and investment markets can be wildly volatile, it is little surprise that some advisers feel only exotic funds will do. Despite decades of evidence to the contrary, there will always be some who feel it is possible to break the unbreakable link between risk and reward.
So rather than simple investment recommendations, some advisers will always recommend what the majority would never dream of touching.
We can only hope to see less of this, improving the reputation of the sector and reducing the cost of compensation when things go wrong.
Perhaps the wholesale introduction of adviser charging and an improvement in standards by the end of next year will prompt a return to sensible recommendations. Perhaps it will result in the new Financial Conduct Authority treating the IFA sector with a little less disdain than that shown by its predecessor. I’m not holding my breath.
Martin Bamford is managing director of Informed Choice