The Treasury select committee's long-awaited publication, which concluded that there should be an end to trail commission, is another clear indication that our law makers do not understand what they are talking about. It seems to me that their task should have been to encourage greater savings in the UK marketplace, not deliver another headline and dent public confidence in the savings market even further.
The Consumers' Association wants to get clarity of charges from providers. Clarity of charges means knowing exactly what you are paying for and how you are paying for it. For my part, I welcome it. I always found it strange that I could never explain to a client where the charges were on a with-profits policy.
But the select committee has completely failed to grasp this and has tried to reinvent the wheel. I would suggest that what it has done is to go for the easy option – attack IFA commission.
The real problem is that people in the UK are not saving enough money. Encouraging them to save more and provide for their futures is the task that the select committee should have addressed. But this is such a difficult subject that it is easier to duck the issue. So I am going to try and tackle it in my own way.
The problem I see here is complete and total ignorance of financial products. Hence, we have had crisis after crisis as the realisation hits that products are not doing what buyers thought they were going to do.
Nothing is taught in schools about savings, pensions or mortgages so information is gleaned as and when you need to know it. But this information, depending on where you obtain it, can be completely inaccurate or misleading. Therefore, you get clients telling you that they are not going to bother to save for a pension because: “Pensions are not worth it, are they?” I cannot believe the ignorance of some people regarding how markets work in the long term. The comment you often hear is: “You get better returns in a building society account. That is how I am going to provide for my pension.” Tax relief and tax-free growth are completely ignored as benefits of providing for retirement through a pension product.
The way we can change this is to provide financial education in schools. What I would suggest is that learning about personal financial products should be one of the elements of the curriculum in secondary schools. Understanding the basics of what a pension does, how credit cards work and how mortgages work would help a great deal with public ignorance.
It would also mean that you would not have to find out about these products at the very moment that you need them most.
Why is it that a client is more likely to seek advice when wanting to borrow money than when wanting to save money?
An IFA's job is to provide his or her clients with basic knowledge about these products, so that your conversations are not about how financial products work but about whether or not a particular product is the best for the client. In that way, you have an educated client who actually ends up self-selecting their own products because they know exactly what they are looking for. When confronted by a product, they ask relevant questions.
Ignorance is not bliss because ignorance only leads to clients wasting money on products they do not actually need. Ignorance only leads to a concentration on charges. Charges have become the emphasis for everything we do.
The emphasis has drifted away from value for money – and value for money is clearly the most important thing to a client. It strikes me as strange that the emphasis has been placed on charges to the detriment of all other criteria. When given the choice between charges, flexibility, value for money, returns and security of investment, quite frequently charges will come last. Returns will invariably come first.
So what I would say to the Treasury select committee is that yet again it has missed an opportunity to make a significant contribution to the debate as to why people are not saving enough and how we can increase the financial well-being of our clients – and voters.
All it has done is covered old ground. It has failed to tackle the real issue of why there is such a lack of interest in saving for the future and how we can increase this interest.
It has taken the easy option and yet again attacked the very people who are tasked to provide the public with advice on saving for the future. For the Treasury select committee, ignorance does indeed seem to be bliss.
John Winful is a partner at Winful Associates