I wrote an article in the Sunday Telegraph in 2004 with the headline ’Brokers get paid £1.5bn for doing nothing’. Not surprisingly, it provoked an angry response from financial advisers.
The accusation was made by Julian Penniston-Hill, chief executive of Intelligent Money. He was launching a new company whose aim was to collect all future renewal commissions, together with any initial commissions, from product providers and return them to policyholders.
“Where did he get that £1.5bn figure from?” asked John Ellis, who was the head of public affairs at the Life Insurance Association at the time. “It’s an insulting, sweeping statement that suggests all IFAs get paid for doing nothing.”
Terence O’Halloran, the out-spoken IFA in Lincoln, argued advisers do “a hell of a lot” of work for their commissions. He said: “I’ve been in business for 33 years and my staff and I break our backs for our clients. We get letters from providers, we com-municate with clients, go to their homes – often during antisocial hours. We discuss specific contracts and give generic advice. We do earn our money and often it is not enough. I am passionate about what I do and it makes me angry to get accused of doing nothing for something.”
Fast-forward seven years and the debate rumbles on.
The national press was given advanced warning that Consumer Focus was set to publish a comprehensive report showing how financial advisers are cashing in before the retail distribution review. We were told it would highlight how IFAs are needlessly switching consumers from one pension to another to earn commission.
Given previous FSA investigations into the matter and the impending commission cull, the consumer organisation seemed to be on to something.
But when the report landed in my mailbox two days later, it quickly became apparent the research was flawed – or at least that the headline accusation was misleading. I even phoned the press officer to check I was not going mad. After all, the report purported to show advisers were cashing in as the clock counted down to RDR.
Its figures were dated – 2009 were the latest trail commission statistics it had unearthed. What about the last year and a half?
A call to the ABI revealed that sales of personal pension plans last year actually fell – hardly evidence that advisers have been pushing plans to unsuspecting consumers in a bid to swell their commission pots.
The reason the report was such a disappointment is that flawed research often does more harm than good.
Fees are an issue and many consumers are oblivious to what they are charged and why.
A survey of 11,000 consumers carried out by Scottish IFA Alan Steel, based on better and more informed research, reveals consumer ignorance.
His Financial Blissful Ignorance Monitor, a monthly index of savers’ awareness shows one in five consumers who go to an IFA are in the dark about how much they pay.
More worryingly, given the RDR is playing into the banks’ hands, it found that one in two bank customers is unaware of what charges and commissions are being levied.
There is a misconception that IFAs are to blame for all of the past misselling scandals – and this report does little to dispel that notion. Yet in terms of uphold rates for complaints to the ombudsman, those for IFAs tend to be lower than other financial services sectors, at around 30 per cent.
Not all IFAs are whiter than white and, let’s face it, no ind-ustry can make such claims. But this report gives people the am-munition to argue that fees and charges across financial services are not much of an issue. And that is misleading too.
Paul Farrow is personal finance editor at the Telegraph Media Group