The new multi-tie proposals are designed in a manner that will allow the big insurance companies to control and dictate the marketplace even more so than they currently do.
For example, Legal & General must be one of the biggest providers of missold endowment policies, acting as a tied agency facility for numerous banks and building societies to sell products which – in 1984 – the Chancellor said would no longer be as financially advantageous for investors because of tax changes.
Why then does Legal & General sell more of a product that is obviously going to struggle? Look at how insurance companies up to the early 1980s deferred capital gains tax liability, offsetting investment income against annuity payments and paying effectively no tax. This must have a long-term bearing on endowment returns resulting in the changes that came about post-1984.
I accept that market movements have not helped but the product was fundamentally flawed. When such products are sold in volume, it becomes clear that the public lose out.
With regard to their mass selling techniques, I have come across the “fact-finds” that they do. Fact-finds are in many ways a naive attempt by the regulators to justify the actions of these cynical institutions.
I know of one filled in by the sales agent who then asked the client to sign it. The client was not too thorough in reading the document – basically most of them do not really understand matters. The result is a problem that I have to try and resolve.
It is all very well someone having signed but when you consider the implications of tax-free cash from pension schemes, I do not think the layman would immediately put two and two together to make four. This is an attempt by large salesforces to mislead and take advantage of the public.
Moving on to L&G's latest link with Barclays to sell stakeholder pensions. This is where you really see how flawed the multi-tie proposal is. The large financial institutions must be isolated to provide a basic function and the advice factor has to be encouraged through the independent route.
As an example, I was asked to provide advice on employment change. The client has taken up the stakeholder scheme with the company so Barclays has pushed L&G. I am sure it is on a commission bias – yet it says that it cannot give advice.The existing scheme was set up on a direct basis through a company that has now been acquired by Schroders but it cannot give advice.
So where does the individual go? She has to negotiate a fee with me to advise her on the effects of policy fees and annual fund management charges.
The only people who benefit out of all of this are the large financial institutions who bulldoze individuals into a system where they can cream off profit in the long run.
There is no attempt to act in the interest of the individual and I am shocked at how Government can be serious about the current proposals. Barriers have to be introduced to isolate these people as they have one interest in mind – what suits their bottom line.
On the IFA side, there is a simple way of controlling greed – the maximum commissions agreement. I do not see why it cannot be brought back. The abuses are caused, in the main, by salesforce-type organisations and it is all funded off over-riding commission.
If those were brought down to smaller realistic margins that allow a modest profit plus advice, that has to be good for the industry and, more importantly, the consumer.
My final problem with L&G is from a final-salary scheme we are in the process of winding up. Here we are trying to work out what is best in the clients' interests in setting up benefits.
L&G were told repeatedly and yet every time they go back to producing figures – which takes an eternity. The figures are on a basis it decides upon – not what we have indicated is in the clients' interest.
The workload on things like this is astronomical so if one is really cynical, one now realises that the better IFAs, instead of trying to grow and develop their businesses spend the most of their time sorting out insurance company cock-ups.
Something must be done to restrict the power of these conglomerates as they have only one thing in their minds – their bottom line.
If we do not look after the end user we do not have a business. There is a natural division and the system has to reflect this. Rigid controls in terms of margins have to be introduced which allow everyone to prosper but stop the excesses that have most certainly applied in the past.
Budge & Company, Harrogate