Money: Not all advice is good advice

They may be `best buys' to some independent advisers, but they could be a bad deal for you.
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The Independent Culture
How independent is independent financial advice? With the creation in 1986 of the Savings and Investments Board, now the Financial Services Authority, financial advisers were forced to tie to one company or choose to become independent, recommending products to their clients from the whole market. But consumer groups and MPs are growing concerned about just how independent some advice is.

Bradford & Bingley Building Society is the biggest high-street organisation in the field, with around 400 independent financial advisers (IFAs). But the "best buy" lists which the society's advisers use to select products for their clients have been criticised for being too restrictive, specifying a limited number of providers for each product area. In the case of personal pensions, just six are listed.

Its IFAs' choices could be said to be limited further by so-called "preferred" or "lead" providers - an even more restricted number of companies or products which advisers are meant to use. Leaked B&B documents containing instructions to its IFAs state: "The recommendation of lead products is mandatory except where they do not meet the suitability criteria. Preferred products should also be recommended when they meet suitability criteria but this is not mandatory. "However, if an adviser does not recommend a preferred product for any reason other than suitability, then the reasons for the choice must be fully documented." One of these "preferred" or "lead" products is the society's own Premier Choice PEP.

Bradford & Bingley's chief executive, Christopher Rodrigues, recently sparked controversy by calling for advisers to be able to enter into a "multi-tied" arrangement - where they would have links with just four or five providers - for some low-cost standardised products, such as the Government's new Individual Savings Accounts (ISAs) and stakeholder pensions.

A spokesman for the society says this is Mr Rodrigues' own opinion. "Whether his personal views reach to being official views is another matter," he adds.

The Consumers' Association is concerned about the use of panels and has tried to conduct research, but with little success.

Its senior money researcher, Philip Telford, questions the society's policy and the use of panels in general. "We have found it pretty impossible to get hold of these lists. If I was going to see an independent financial adviser I would expect them to look across the whole market. "I am very concerned. The number of products they are recommending seems restrictive. You would seem to be steered towards a small group of lead or preferred products rather than having one recommended to suit your circumstances at any particular time."

Bradford & Bingley's spokesman says: "All our panels are independently drawn up by independent actuaries. They fairly reflect the best available providers and products at any one time. They are constantly reviewed and updated."

Ken Raynor, the society's investment market manager, is responsible for its PEP and unit trust panels. The B&B PEP works by outsourcing to a third-party fund manager. Mr Raynor says: "We have a lead or preferred provider on the PEP panel, which is currently the B&B PEP, which is invested in the Schroder Enterprise Fund. We re-look at this every six months. You could say we are focusing on one product but in reality it doesn't work that simply."

He adds that if a client already has a large holding in this fund the adviser will recommend another PEP. They have a choice of 42 funds.

But even other independent financial advisers are wary of this approach. For example, DBS, the largest network of IFAs, has a much wider unit trust panel, featuring more than 200 funds.

Andrew Bedford, sales and marketing director at the Financial Options network of 250 advisers, says his company does not like panels. "We don't use [them] because of their restrictive nature. So many people's circumstances are so vastly different that a good panel would be so large it would be unworkable,' he says.

How to Find a Good Adviser

Financial advisers have had a bad press in recent years. They were implicated, for instance, in the scandal over mass mis-selling of personal pensions. On the other hand, good advisers can be worth their weight in gold.

By law, they can be either tied, advising on only one company's products, or independent, choosing products for their clients from the whole market. Here is a brief guide to the different types.

Company Reps:

Directly linked to one company. Examples: Prudential, Allied Dunbar.

Pros: Thorough knowledge of their company's products.

Cons: Pressure to meet sales targets can lead to improper advice. Appalling record in pension mis-selling, variable in clearing it up. Can only advise on one company's products.

Tied Agents:

Contractually tied to one company but not directly linked. Can range from building societies to one-man bands.

Pros and cons: Similar to those for company representatives.

National Firms:

Large companies, often employing hundreds of IFAs. Examples: Hogg Robinson, Bradford & Bingley.

Pros: Their IFAs have the resources to research products thoroughly. Buying power can get clients discounts.

Cons: Operate off "best buy" lists, which can be restrictive. Buying power can simply mean higher commissios to advisers. Poor pension mis- selling record, but in most cases quick to clear up.

IFA Networks:

Companies providing back-office support, research, and training to IFA firms. Examples: DBS, Countrywide, Financial Options, M&E Network.

Pros: As for national firms, above. Members are usually small firms running their own businesses and have close personal contact with clients.

Cons: Poor pension mis-selling record, very poor clear-up record. Often use "best buy" lists, but wider and less prescriptive.

Other IFAs

Huge variety, ranging from single practitioners to firms with up to 20 advisers.

Pros: The personal touch. Rarely use best-buy lists.

Cons: Some argue that they lack the resources of bigger players.

Lastly, check whether your adviser has passed the AFPC or PIC exams, the profession's recognised qualifications.