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Taking care of the Welloffs while the Averages suffer

Open letter to Chancellor Gordon Brown.

I am increasingly saddened and frustrated by the continued damage done to the financial services industry by our own regulatory body. It appears that the FSA, like the PIA before them, are guilty of making badly advised and ill-informed decisions about what the British financial services consumer wants or needs and are keen to bulldoze through changes to legislation to endorse those decisions.

The latest FSA proposal is that the present polarisation regime should be abolished, allowing tied advisers to sell the products of other companies, thus establishing the multi-tied adviser.

Further, to preserve their independent status, IFAs should only be remunerated by fees to avoid the potential for commission bias. The only truly independent financial adviser is one who charges fees, they say. Absolute rubbish, I say.

The greatest success of our present polarisation regime has been that the public are increasingly aware of the difference between tied and independent financial advice. It is also clear from every survey conducted in recent years that the sector that is growing most in terms of new business is the independent sector, which suggests that the public increasingly value the benefits of independent financial advice.

At the moment, an independent adviser can be paid in fees or commission. This is the choice of the adviser and the customer. The FSA do not understand that removing that choice by abolishing commission-based advice from IFAs would have a devastating impact on a huge number of consumers. Allow me to explain, Mr Brown:

I am an independent financial adviser with around 250 clients. I work only on a commission basis. For the record, I can categorically state that I have never recommended any investment, pension or insurance policy on the basis of how much commission it paid me. What is right for the client has always been my guiding rule. Any commission I earn is always a byproduct of the process of meeting my client&#39s needs. It is a philosophy that serves me well. There is no need to be greedy at the expense of damaging valued client relationships.

I am pleased to be of service to my clients and proud of the fact that they value my services. Many have been so pleased with my services that they have referred me to business associates, friends and other family members.

Around 40 of my clients are in what I would call the high-net-worth bracket. They include bankers, money brokers, accountants, dentists, doctors and even a solicitor. Let us call them the Mr and Mrs Welloffs of the world. Over the years, the occasional Mr or Mrs Welloff has raised the issue of my working on a fee-charging basis. When this has happened, I have always stated clearly that I do not work on that basis. I explain in detail how I receive commission for introducing my client&#39s business to insurance and investment companies.

If after reviewing my work, they are not completely happy with it, I take back my report and refer them to one of my colleagues who will work on a fee-charging basis. None have yet taken up my offer to refer them to a colleague. However, I do not live in an ivory tower and I appreciate that I cannot build a profitable business dealing only with Mr and Mrs Welloff. I am therefore equally happy to give financial advice to the Mr and Mrs Average.

Mr and Mrs Average tend to be rather mistrusting of fin-ancial advisers because they read the tabloids and watch a lot of TV. Eventually, when Mr and Mrs Average realise that I am not there to steal the family silver, I may actually conduct some business with them.

I may rebroke the horrendously expensive life cover that the Woollyfax Building Society sold them when they took out a mortgage five years ago, saving them several pounds each month. I might then set up a small savings plan, Isa or a stakeholder pension plan to help provide for their future, using the money saved in insurance premiums. The issue of my charging a fee for the service I provide to these clients has never been raised. Why? Because most of the Mr and Mrs Averages of this world would not be able to afford to pay me a one-off fee for my services. Mr and Mrs Average are happy for me to receive commission for the same reason that they still buy clothes and furniture from club-books, and Playstations and DVDs from the Dixyworld Discount Electrical Warehouse, using dubious buy-now-pay-for-ever schemes: Because it is an affordable and convenient way to get what they need or want right now.

Some Averages might trust their bank or society enough to seek advice from the latest eager young management trainee to come back from his two-week training course with his shiny new car, shiny new laptop, shiny new suit and an equally shiny smile. Again, although the previously one-company-tied bank adviser might now have multi-ties to half a dozen other investment companies, the customers still might think they were getting independent advice when in fact they were getting a choice from a limited range of options.

But the vast majority of the Averages will almost certainly do nothing. They will not buy any financial products at all because their independent financial adviser, who used to be paid commission, will now want to charge fees that they cannot afford to pay. So they just won&#39t bother with investments, insurance, pensions or that sort of thing. I will lose the biggest part of my customer base and I will go out of business, which will, of course, leave the last few fee-paying. It won&#39t really cause any problems for Mr and Mrs Welloff or Mr and Mrs Average will it? At least not for a few years. Not until they start to retire, with no pension or investment income to look forward to. Or until they start to get old and sick, with no private health or long-term care cover. Or until they die without life cover.

I don&#39t need to worry myself, as I won&#39t even be working in financial services by then. Due to my business going bust, I will have a new career. I will be on my training course at the Dixyworld Discount Electrical Warehouse, learning how to sell DVD players and digital foodmixers on buy-now-pay-for-years schemes.

So, instead of me turning up after the funeral with a cheque to pay off the mortgage, some other good samaritan will have to pop round and see my former clients in their hour of need. Only problem is, they will have to explain to the grieving Mrs Average with the three little Averages who miss their Daddy that they will have to move to a council flat and live in poverty for the remainder of their days. They will have to do this because poor old Mr Average did not have any life insurance when he died, because he could not afford to pay up-front fees for an independent financial adviser to arrange a policy for him.

Nick Plumb

Legacies Asset Management,

Brentwood, Essex

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