The FSA is launching an investigation into the extent to which IFAs trust product providers' literature.
This has been hastened by the precipice bond problems and the split-capital debacle. The IFAs I come across do not glibly accept all they read and Plan Invest has a reasonable record in questioning marketing material, going back to the days of my predecessor who vociferously challenged the Barlow Clowes literature well in advance of action eventually taken by the authorities.
We of course have a duty of care to appraise products very carefully before passing on any appropriate recommendations to our clients. Taking the split-capital industry, one of the major players named its zero fund the secure growth plan while another infamously coined the phrase “At last, a one-year old who lets you sleep at night” in order to generate more sales of that fund on its 12-month anniversary.
Similarly, precipice bond literature has been littered with claims that over five years markets have never fallen. Therein lies the real crux of the problem. These so-called low-risk products have seen their claims blasted to smithereens by a severe bear market, which has now taken its full toll, releasing floods of complaints by investors.
I think many IFAs did carefully vet precipice bond products, for example, and if they used them then it was as part of a balanced portfolio.
The zero problem was more difficult because we did question risks and fund holdings with one of the main provider groups. Looking back, I do not think we were given all the information we requested and I do not think IFAs could be expected to investigate the murky world of cross-holdings.
We felt let down by such product providers. Indeed, most of the industry, including reputable training courses which I attended, expounded the low-risk virtue of zeros.
The product providers must take responsibility for their literature and within this challenging environment the IFA is going to need to be vigilant, examining the products very carefully. Crucially, the issue comes down to clarity and customer trust.
It is very sad that at a time when people are in great need of financial advice, trust in the financial services industry has plummeted to an all-time low. It is now time to ensure that our products do perform exactly as described on the tin.
The industry has let itself down in the eyes of the public, with complex jargon and exaggerated performance claims. In short, too many funds have been launched.
Financial misselling scandals have resulted in the areas of endowments, split-caps and precipice bonds, so we now have enough bad news in the press every week to make the average saver keep his money under the bed.
The Government has also contributed to the malaise with its stealth taxes and tinkering with pensions, which has just compounded client apathy.
IFAs and product providers now have a duty to ensure that we present clear information on products and the FSA knows that this starts with good marketing literature.
As IFAs, we cannot afford to simply accept product literature claims as gospel and groups must, I think, give a full explanation, warts and all, in their brochures. Structured product literature should, for example give equal prominence to the downside as well as to the upside.
When these building blocks are in place, the public should have more confidence in our industry. We are at a disadvantage in that our typical product can never come with a guarantee because one if its main components is performance. But we can do the next best thing and deliver clarity.
Michael Owen is joint managing director at Plan Invest Group