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Low expectations

A few months ago, I was talking to a friend of mine about his finances. He and his wife are in their late 30s, both are in full- time work and they have a young daughter just entering her teens.

The couple have used the services of an independent financial adviser over the past 10 years or so. Every year, they get a letter from him asking to get in touch for an annual review meeting.

Sometimes they attend that meeting, although experience has shown them that the main purpose of the review, after a perfunctory look at how their investments have performed in the past 12 months, is to determine if there are any financial products they have not yet bought. If they are flush, my friend and his wife will use part or all of their Isa allowances.

My mate, it has to be said, is quite cynical about his IFA. “He’s only there to flog me a pension,” is one comment. This is quite surprising, given that he belongs to an occupational scheme and, to my knowledge, the adviser has never tried to missell a personal pension.

Another is: “In all the years we have been to see him, he has never once suggested to me that any of the investments we have made needs to be moved elsewhere. I have never had proper analysis of my portfolio and whether it meets my needs.”

Despite this cynicism, my mate still insists that “if we had to make difficult financial decisions or we had loads of money to invest, I would pick up the phone to our IFA.” In other words, in an uncertain and stormy world, you cling on to whoever you think may be able to offer you some shelter, whether you think it is adequate or not.

That said, he also believes that he would probably get good advice if he was prepared to go into his bank and pay someone there for it.

Even after 10 years, he still does not fully understand the difference between genuine independent advice and what happens if he goes to a direct salesperson – not that he has had much to base his experience on.

I was reminded of my mate’s views last week after reading a new report by the FSA’s Consumer Panel looking at the regulator’s retail distribution review.

According to panel chairman John Howard: “At the moment, consumers are generally confused about the type of advice they are receiving and, appalling though it may seem, many people are now simply resigned to not getting the best advice when they talk to a financial adviser.” Sounds exactly like my friend.

The panel carried out research into what people expect from their advisers. It found that most consumers do not distinguish between different types of adviser when talking about or referring to financial advice. Many apparently described the advice they had received as independent, even when it was provided by a tied financial adviser or even by bank sales staff.

Again, they must have been talking to my mate. He knows that IFAs and sales-people are both remunerated by commission. As far as he is concerned, it means neither is truly “independent” although he accepts that some are more so than others. But because this is more likely to be an attitudinal thing – some advisers are “bent” and others are “straight” – it also means he thinks he can get independent advice from a bank as long as the adviser is not “bent, that is”.

Like many others, my mate and his wife believe it is sometimes good to be able to discuss their financial situation with an IFABut they have their own self-imposed rules on when they might want to talk to an IFA. Like the majority of consumers in the panel research, they would only seek advice for “life- changing” amounts of money in the region of £20,000 to £30,000. But if the amount of money at stake was £5,000 to £10,000, they probably would not. Ironically, the notion of planning for something, regardless of whether a lot of money is at stake, does not even enter into it.

The panel’s response to this service is to suggest that “the financial advice market is in urgent need of change”.

Howard says the RDR “must establish truly independent advice and clearly distinguish it from mere sales”, adding that “the research also suggests a pent- up demand for a properly funded and promoted generic advice service. This would act as a trusted gateway to financial services for the many consu-mers who lack confidence in the system or their own ability to engage with it.”

I don’t see that happening. My friend would not be seen dead talking to a generic adviser. People like me are his generic advisers after all and I am also not sure that my mate will be taken in by cosmetic changes to independent advice, unless any differentiation between IFAs and salespeople are massive – and blindingly obvious.

Even then, he is just as likely to continue to muddle along in his slightly cynical way with his current adviser.

It is partly to do with familiarity but also to do with low expectations. If my mate is typical, what this means is that the RDR has already failed.

Nic Cicutti can be contacted at nic@inspiredmoney.co.uk

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