There is still an aura and a degree of respectability (only a small degree) of being able to write on your letterhead the word independent. Investors are informed that an inde pendent investment adviser can supply any authorised inv estment product.
There has been considerable debate on whether a multi-tie would still make such an adviser independent but today we have not seen anyone cross that bridge. Or have we?
Today, the multi-tie arrangement is already operating. It is not called that, of course, it is called screw the best rate of commission from one company and then tell your entire salesforce to use just that company.
Allegedly, many national brokers with household names will only sell you a very, very limited range of products. They hide behind this limited independence by suggesting that they have “a panel”.
They have researched the market and chosen one or two products in each sector as being the best in the marketplace. The best for what – the client or commission?
It is strange to relate that the Financial Services Act seems to have had the reverse effect on independent advice. It has made it increasingly difficult to find.
It is my contention that, today, the majority of consultants who work for major broke
rages have a limited ability to call themselves independent. They have virtually no discretion on investment and product choice and most inv estment reports could be written in about 20 seconds.
It does not matter what the fact-find said, the client gets £10,000 in deposit, him and her get £7,000 in an Isa (choice from one of three for each of them) and then £60,000 goes into a with-profits bond. There, I have written the report. The only thing different is if the client has a bit more money you might keep more on deposit, so you can stuff them in an Isa next year and you could if the client has considerably more money give him a small managed portfolio of unit trusts.
Things do not just end there. There are many brokerages in the land which will not recommend an Isa unless the underlying fund in which the Isa is invested is rated by Fund Research (now Stan-dard and Poor's).
What this is basically doing is shelving the responsibility away from the independent adviser. In effect, it is saying to the investor that we cannot suggest something new and exciting with a brand new fund manager who has a fantastic track record in the right sector of the right market without asking that group to spend a huge amount of money to get a rating from Fund Research.
Of course, the Fund Res earch process is extremely good but no brokerage should place an imposition on the various groups to pay for this research and then claim that they can give investment advice themselves.
All that says is that the independent brokerage is only independent for products that have been independently assessed and that they are incapable of having their own view and from a compliance point of view of blessing a product themselves.
It would be interesting to find out how far this matter has gone. I do suspect there are many advisers around today who because of the “panel” arrangement only provide two pension plans, three Isas, one endowment policy, one with-profits bond (where he invests the majority of his client's money) and no unit-linked bond at all.
Interestingly, things are not getting better as people unravel the intricacies of the act, they are getting worse. It is only months away from a situation where most brokerages might as well tie because the product range on which they give independent advice will be more restrictive than what the man from the Pru can offer, cycle clips and all.
Who is going to be brave and allow their advisers to advise from the whole spectrum? At least it would make their jobs interesting again.
Peter Hargreaves is managing director of Hargreaves Lansdown
Your readers may be interested in Autif's position on the 1 per cent cap on stakeholder charges.
Autif chairman Alan Ainsworth, in a speech following the association's AGM in June, told Social Security Secretary Alastair Darling: “The radical changes in the business model [that stakeholder will bring]would not have happened without some form of interference in prices.
“Stakeholder seems to be one of the very few instances in which Government interferes in the prices of products other than when a monopoly is present. I would urge the Secretary of State to monitor carefully the development of the stakeholder pension market and to remove the price cap as a matter of principle at the earliest possible opportunity.
“The 1 per cent cap on stakeholder pensions delib erately offers little or no head room for the provision of advice at the point of sale.
“But the point this assoc iation would wish to make is that the advice which will grow in importance over the years will be less about the decisions whether or not to invest in the stake holder pension and more about how to invest the money in that pension fund.”