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In an unofficial survey of IFA practices owned by accoun tants, where clients have no alternative except to pay fees for accountancy services, fewer than 20 per cent of those same clients chose to pay fees for financial services advice when a commission alternative was available. That seems to suggest an overwhelming vote by the public for choice. Our overall experience is similar.

What has become the crucial consideration is not the ini tial acquisition cost of the product, nor historic per form ance, but the overall long-term cost of owning that product. It is a basic law of business – lower charges lead to worse service, all other things being equal. The stakeholder-inspired drive to reduce total costs is too vague and positively dan gerous.

It is obvious that our clients&#39 needs may change over time. We consider it extremely important that a client can vary the specific details of their plan at reasonable cost and without excessive administrative aggravation.

In theory, equities outperform cash in the long term but that is not true unless you buy shares whose price rises. Ask anyone who has been holding Marks & Spencer shares lately. Index trackers are touted as a safe, low-risk way of benefiting from the stockmarket. Ask the Japanese – they will probably drop their chopsticks laughing. Hindsight is a marvellous thing – go on, ask someone who bought a Johnson Fry High 1 single-company Pep, I dare you.

If history teaches us anything, it is that regularly review ing the situation and adjusting plans to suit the changing condi tions is more likely to succeed than sticking with the first idea that came into our head just because it was cheap. Active management takes time and that necessarily costs our clients money. What consumers need is value for money.

Administrative competence is one key. The service we receive from the majority of product providers has been getting steadily worse and is generally far below an accep table standard. Web-based service is great in theory but does not yet work nearly well enough in practice. Unless it does, the UK financial services industry will be dev astated. Is this a sensible gamble to be taking right now?

We advise clients to avoid certain insurance companies because the chances of the purchase and subsequent servicing proceeding smoothly are almost nil. Anyone who regularly suffers the staggering ineptitude of the pension companies simply cannot believe they are allowed to get away with it by the FSA. It would be nice for the public if the FSA could devote more of its powers to enc oura ging insurers to deliver high-quality service consistently.

Forcing life companies to make a loss for 10 years is irresponsible. Insurers know that, as ABI members, 90 per cent of their assets are reinsured by all other com panies, so there is the moral hazard that they can gamble gener ations of with-profits policyholders&#39 reserves against being one of few survivors who, they fantasise, will reap gigantic economies of scale and clean up. If they lose, they person ally get a nice redundancy package and it is the survivors who pay for the clean-up. Is it a coincidence that there is currently a mad scramble for insurers to claim orphan assets?

Life offices are incapable of offering accept able service and meaningful commission within the impo sed charge cap. Clients, who are not keen on fees at the best of times, are definitely not going to want to pay IFAs extra fees for sorting out the mess the insurers dump everyone else in, as those same insurers balk at paying IFAs fees for their was ted time.

Stakeholder and mandated low charges are Labour&#39s financial services equivalent of the Millennium Dome and the results are likely to be similar.

Michael Both is a partner at Michael Philips


Lincoln remains open for IFAs

Lincoln Financial Group has announced it will remain open for IFA business despite transferring its salesforce to the Inter-Alliance IFA group. The IFA division will continue to offer Lincoln products such as its financial foundation umbrella protection range and its unit trusts. It has also confirmed new and existing clients of Lincoln’s unit trust managers […]

Abbey aims for wealthy investors

Abbey National is this week launching its new wealth management business called Inscape. The venture is aimed at the projected 4m people who have at least £50,000 to invest and will be offered over the counter at local branches and on the internet. The move follows similar ventures by banks such as Credit Suisse who […]

Don&#39t clock off before planning

There are a number of good reasons to undertake inheritance tax planning during an individual&#39s lifetime.Before looking at these further, it is worth dealing with the argument that an estate can be varied after death, so that estate planning can be left until the 11th hour in all but the bigger cases.This argument rel ies […]

Legal & General – Global Healthcare and Pharmaceuticals Index Trust

Wednesday, 15th November 2000.Type: Unit trust.Aim: Growth by tracking the healthcare and pharmaceuticals sections of the FTSE world index.Minimum investment: Isa lump sum £500, monthly £30. Direct lump sum £1,000.Investment split: 100 per cent tracking healthcare and pharmaceuticals sections of the FTSE world index.Isa link: Yes.Pep transfers: No.Charges: Annual no charge until April 6, 2001, […]

Generation Rent

By Denise Wond, marketing manager We’ve heard a great deal about Generation Rent in recent years but what does it actually mean for consumers and advisers and has the face of the typical renter changed? The picture is certainly more diverse than it used to be. Homeownership is at its lowest point in 30 years, […]


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