I have been in the financial services industry for 37 years, mostly as an employed IFA but since January 1996 as a partner in a provincial IFA in Kidderminster. I feel that I can no longer contain my anger and frustration as to how Governments of all political colours have interfered with our business over the years, particularly in the area of occupational and personal pensions.
In the 1960s, smaller employers copied bigger firms in establishing final-salary schemes, as employees knew they would be able to retire on a known percentage of their final earnings. Year after year, the Government insisted that improvements were made to these schemes, particularly for the early leaver. This added considerably to scheme costs.
The Government also made the mistake of removing the compulsion of employees to join occupational schemes after they had satisfied a service qualification. When inflation took off in the 1980s, these schemes were abandoned in large numbers in favour of inferior defined-contribution schemes, as employers could not stand the costs of inflation plus the costs of regulation and statutory improvements, which were difficult to share with employees.
The Government then encouraged everyone to contract out of Serps by means of appropriate personal pensions, then blamed IFAs 10 years later for advising people to do so. Also, those who advised clients to take out buyout policies have been penalised as they could not foresee further legislation improving deferred pensions.
Despite the representations of the IFA community over stakeholder pensions, since April 6, 2001 we have been lumbered with the 1 per cent maximum annual management charge, which has to cover the costs of both insurer and IFA.
While employers have been compelled to set up stakeholder schemes or acceptable alternatives, there is no compulsion for employers to contribute. It would not have taken a wizard to predict that these employer stakeholders would be a flop without employer contributions.
Despite Government efforts of persuasion, the public still believe that: “The state will look after me in my retirement and why should I pay into a pension when, even if I do save, my additional pension will be taxed at 40 per cent?”
As a result of Government intervention, our remuneration on regular pension contributions has been cut by two-thirds and the 1 per cent world is slowly spreading to other areas of pension advice, particularly in the executive pension sector.
It appears the Government believes that Joe Public is just waiting to pay fees in place of our lost commission. This is obviously not the case. Fee-based advice is good in theory but there is resistance by the public to pay fees. Where they can be charged, fees are generally considerably less than initial plus renewal commission. I am talking here about financial advice in general, not just pensions.
Certain people may consider that some commission levels paid in the past have been excessive but I believe that, when knowledge and experience plus the costs of research, admin and compliance are taken into account, this commission is well earned. With heavily reduced commission, we are at the same time burdened with increased compliance costs, which we are unable to pass on.
The charges of insurers on some contracts have been too high and charging structures themselves confusing. But we are now in the situation where matters have gone completely in favour of the consumer. We, as a reputable, highly experienced, award-winning firm and, with a partner with the AFPC, have always tried to take the same level of commission from each provider, rebating excess commission into client contracts.
If things continue as they are, independent advice will only be available to high-net-worth clients and businesses.
There are no new people being trained as IFAs due to the burden of compliance and the lack of a future in the IFA sector while current policies and attitudes exist. I would not encourage any youngster to train as an IFA at present. I am now the average age of an IFA – nearly 55. How many IFAs will there be in five years time, when I and many of my peers have retired?
Partner, BBI Independent Financial Advisers,Kidderminster, Worcs