So that's it then. For all these years an industry employing hundreds of thousands, plus all the associated civil servants, company managers and hangers on have been referring to “independent financial advice” like it was a good thing.
The FSA itself has consistently urged people to seek independent financial advice. Poor old IFA Promotion has spent millions of its contributors' money promoting independent advice, doing the Government a huge favour by helping the public understand at least one aspect of the financial system – the difference between advice that is independent and advice that is not.
Now it is being made manifestly clear exactly how little the FSA thinks of that once precious distinction. “The extensive research we have carried out as part of this review demonstrates that the regime we inherited now represents a major market distortion and has simply not delivered sufficient consumer benefits to justify maintaining it,” says chairman Howard Davies. “So we propose that it should be abolished ”
But what exactly has “independent” meant for all these years? The Independent newspaper used to declare itself “independent” in the sense that it had no dominant owner who might compromise its editorial freedom by, for example, making it clear his newspaper should be anti-European.
IFAs are independent in a similar sense. There is nothing in their ownership nor in their relationship with suppliers, which would compromise their ability to give advice in the best interest of their customers.
But why should ownership, or for that matter having one company that pays your commission, count for so much? There was always something ludicrously idealistic in what independent financial advice really meant.
A true, pure and perfect independent financial adviser would, at least in theory, comprehensively absorb every aspect of the client's financial needs. They would then examine literally thousands of financial products, sifting out the dross until they arrived at the gem their client needed, tell them why they needed it in writing and disclose what they would get for selling it. Tied agents and company reps could only “advise” on one company's product and their advice was bound to be inferior, influenced as it was by their relationship to their employer and/or sole commission payer.
Legislation such as the Financial Services Act 1986 was required to protect vulnerable customers from these perils by insisting that every financial adviser gave best advice.
Now we are told that this idealistic aspiration was flawed. The watchdog spent a lot of time and money commissioning a posh consultancy called Charles River Associates to work out whether IFAs ever recommended a product, or a provider, not because it was best but because it paid the best commission.
The conclusion used by the FSA to support its decision to change the regime (namely, “yes, they do, sometimes”) is about as Earth-shattering as saying “most people prefer more money to less money”, or “human beings sometimes sin”.
The true conclusion from Charles River's research is that IFAs display commission bias so infrequently that they should be canonised as latter-day saints. The consumer detriment from commission bias is restricted to three product categories – distribution bonds, with-profits bonds and unit-linked endowments. On all the others, there is no evidence. Contrary to the cynicism of the money press, it appears that IFAs are very rarely influenced in their recommendations by the amount of commission.
On those rare occasions where consumer detriment does occur, it amounted – shock horror – to a spuriously calculated £140m. But hold on, that actually sounds like a comfortably small amount, especially given the billions of pounds of financial products sold every year or the mega-millions lost to consumers through factors like not getting financial advice at all.
Not only that, but IFAs offer their customers commission rebates in 30 per cent of all product sales. With tied agents, commission rebates are so infrequent as to be negligible. The FSA, supported by Charles River's research, has persuaded me that IFAs must be the most altruistic, self-sacrificing professionals on the planet. We must get rid of them at once and replace them with something more confusing.
Andrew Verity is personal finance correspondent of the BBC