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Commission is millstone round IFAs&#39 reputation

A curious paradox within the life and pension industry emerges in the latest Swiss Re Insurance Report.

Based on a survey of 1,000 consumers, the report shows a strong preference for face-to-face advice and a growing recognition of the benefits of independent advice. But this does not translate into general esteem for IFAs.

One of the questions aimed to uncover the level of respect for various professions. IFAs will be relieved to know that estate agents came bottom.

But only 10 per cent of those questioned said they had “a lot of respect” for IFAs, while just under 60 per cent said they had “some”. Bank and building society staff scored higher approval ratings, with a quarter of them garnering “a lot of respect”.

Understandably, this is a finding that has been greeted with dismay by some advisers. Saunders Associates principal Roger Saunders believes a different picture of customer loyalty emerges when looking at those who have actually had dealings with IFAs.

Wentworth Rose managing director Philip Rose says: “I think the findings about low esteem for IFAs reflect the presence of a lot of people from lower socio-economic groups in the sample. I do not know how poor people are going to get advice – it is not a problem for us. The Government cannot have it both ways. We provide advice to people who can afford to pay for it.”

There is better news for IFAs when it comes to employer perceptions of their image. The report says IFAs are seen to have been very active and helpful by employers, with advice causing very little cost to the core business.

Sadly, it seems consumer perceptions of IFAs are haunted by commission bias. The research says consumers “expressed their distaste of the commission system for all channels of advice and were clearly looking for a proposition that will relieve them of the tedium of sorting out their finances without any bias or sales-related commission being paid to advisers”.

Scottish Equitable pensions development director Stewart Ritchie thinks perception of the industry is understandable. He says: “While we might feel the view is a little exaggerated, there needs to be a degree of reality for the view to be formed in the first place.”

It is little consolation that life offices appear to have a much more serious image problem, according to the report, which identifies feelings of betrayal. It states: “Consumers want the financial services industry to make them feel safe, secure, comfortable, supported and rewarded with bespoke products that offer good investment returns. But the reality of how they feel about the industry is far from this – confused, worried, belittled, stressed and trapped by faceless, inaccessible, profiteering corporations with &#39slimy salesmen&#39.”

The industry perception of over-regulation is not shared by consumers, who believe the sector is heading in the right direction only because of heavy-handed intervention. Self-regulation, such as the ABI&#39s Raising Standards initiative, is greeted with cynicism by consumers.

The report also criticises the industry for not speaking with a single voice. The section penned by Swiss Re technical manager Ron Wheatcroft claims the industry continues to give mixed messages to the Government and urgently needs to improve its image with those in power.

The report also identifies that a “lack of easy access to advice will be a fundamental barrier to purchase”, particularly for the less wealthy. This comes despite a finding that people show quite high levels of acceptance of the need for future self-provision.

Qualitative research shows many consumers perceive advice to be mostly assistance with filling out forms and basic reassurance that they are taking the right course of action.

Overall, the report throws up many more questions than it answers on the public&#39s uneasy relationship with IFAs.

Aifa director general Paul Smee says: “IFAs are relatively recent arrivals on the scene and it take many years for good public perceptions to be built up. It is for the industry as a whole to work to achieve a strengthening of the IFA brand.”

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