Are you taking financial advice today? There is a huge need for people to be able to access professional financial advice they can trust.
This is particularly relevant against a backdrop of the credit crunch, final-salary pension scheme closures and the state pension facing a crisis. Yet many people still do not seek advice.
This is because many people simply do not trust financial advisers, and they have good reason not to.
Many financial advisers are solely interested in selling products to earn commission rather than providing the best advice for you.
This has led to a regular stream of high-profile mis-selling scandals over the years, including endowments, pension transfers and precipice bonds.
The Financial Services Authority (FSA), the industry regulator, has acknowledged this and has announced that it will ban all commission payments from the end of 2012. This is great news if you need financial advice.
The problem you face when taking financial advice today is that most independent financial advisers (IFAs) have an in-built conflict of interest.
There are a few firms that charge clients fees and refuse to take commissions, but most IFAs are compromised because they earn their income exclusively from commissions paid by product providers for selling their products.
Advisers in these firms only get paid if they sell you a product and the amount of commission they receive will vary depending on which product they can sell you.
Banning commissions is the only way to resolve this conflict of interests and the FSA should be congratulated for taking this bold step.
Towry Law has long campaigned for the abolition of all commissions to financial advisers, believing that they lead to inappropriate advice and recommendations.
The banning of commissions will explode the myth that advice is free. Financial advice is not free; it never has been and never will be.
The old-world pretence of “this advice is free for you because the product manufacturer will pay” is over.
In the future, advisers will be forced to show you how much their advice costs and you will then have the opportunity to determine whether you consider this to be value for money.
By way of an example, in today’s world, if a commission-based financial adviser wants to sell a £100,000 investment bond to you they will typically take an initial commission of 7%. This is £7,000. This is a real cost to you but will be dressed up as a payment from the insurance company. In the new world, you will need to agree to this level of payment at the outset and it will come directly out of your investment, leaving just £93,000 in the above example. Who is going to pay £7,000 for an hour or two of advice to buy an investment bond? The answer is nobody, yet many people, unsuspectingly, do so today.
Some in the financial advice industry have argued that commissions should remain since this would mean that less wealthy clients could still access financial advice because they cannot afford to pay fees. This view is deeply insulting: everybody pays fees today, from a car service to a visit to the dentist.
The end of commission payments, along with measures to improve professional qualification standards, will greatly benefit you, but there is a catch: these changes will not become mandatory until December 31, 2012.
Andrew Fisher is chief executive of fee-based wealth adviser Towry Law