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Going for broke

Advisers must turn away from relying on insurance companies’ material

If it’s not broke, don’t fix it – a throwaway line for a lazy person to avoid work or a fair comment?

My only disagreement with Callum McCarthy’s comment about the model being broke is that for it to be broken it has to have been functional at some point. When was that?

I am 38 and I wonder if, during my lifetime, we will evolve into a profession. A number of things will have to change.

Thinking needs to change. We all need to accept responsibility rather than adopt a blame culture. Honesty is knowing what path to take and integrity is taking it. Consider this – you are in a room and your mother is being advised but you cannot speak or influence. How many advisers do you know that would make you feel comfortable as you observe them?

I see all the evidence today that the vast majority are driven by their own commission and high targets. Every problem we have in our industry stems from this.

Our industry is full of rules which, while very annoying for me, are essential to take care of the lowest common denominator. I spoke to a friend last week who advised me that their adviser had trundled off to WH Smith to buy wage slips to “validate” a customer’s income. Not broken? The industry needs to adjust this process or make it difficult for them to stay in the business.

The exam process needs an overhaul. My last check on Cemap still described an endowment as the RollsRoyce of repayment vehicles. Advisers should be tested each year on their practical ability. Instead of fining and fee-charging at the back end, the FSA should charge each adviser to be assessed in a practical situation.

How many would advise an onshore bond or with-profits bond if they thought it would be checked and may bring forward their exit from the industry. We get so close to doing this but fall short. It is time to take that action.

The business is insurance company-led. Advisers rely on the insurance company’s marketing material as evidence of suitability.

Education is provided by insurance companies. How can that be impartial? Insurance companies also provide incentives. They are instrumental in structuring an adviser’s thought process so they conclude their product as a solution. Small IFAs with no research department will rely on this as true information when it is little short of sales drivel.

Having interviewed over 200 IFAs in the last four years, we noticed that few value research at all. True research should be impartial, objective and provided by a third party with no axe to grind. Most is provided or funded by the insurance industry.

Regulatory bodies need to take action. They know the major players which provide the greatest risk to the consumer. These big organisations are sales-driven with lower controls.

Someone needs to take responsibility for depolarisation. What a disaster. We knew you are more likely to have more complaints in the tied sector so instead of one hand grenade we give them lots more to play with. What was wrong with IFA or nothing?

Up-front commission should be banned or neutralised to unit trust/Oeic levels and customers should have to sign alongside commission and extra risks to prove they really understood the key points of what they had undertaken. If the tax-inefficient bond paid 3 per cent commission and the more tax-efficient Oeic paid 7 per cent, which would be sold the most?

The Financial Services Compensation Scheme should be hard on phoenix firms by inflating the individual FSCS levy and firm levy rather than the quality IFA being charged it.

Insurance companies need to stand together to protect us all against the individual who churns. The new firm should not to accept the churned business.

We all know that if advisers thought properly, the industry could self-regulate but until then, I, along with all serious professional IFAs, am happy they tighten up until sales become honesty which becomes integrity.

Peter McGahan is managing director of Worldwide Financial Planning

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