Personal finance: IFAs face shake-up

Consumer financial advice leaves a lot to be desired. By Teresa Hunter

THE CHIEF consumer watchdog, the Office of Fair Trading, is about to call for a shake-up in the way financial advice is given in Britain. John Bridgeman, OFT director general, is expected to publish a report in the next week or so, critical of the current system of polarisation, which divides consultants into company representatives and independent advisers.

The report could lead to the introduction of so-called multi-tie operations, and require all independent financial advisers to charge a fee. It will go before the Treasury, for the Chancellor to decide whether change is necessary. The main fear is that any changes might price good quality advice out of the hands of ordinary investors. Advisers who now charge a fee cost pounds 100 to pounds 150 per hour. If you have a significant lump sum to invest, then it's worth paying. But most ordinary savers, investing much smaller sums, pay less through commission, which is usually based on a percentage of the money at stake.

Polarisation was always an unsatisfactory way to carve up the market place. It was born out of expediency and a desire to get the Financial Services Act on the statute book as quickly as possible, and to kick the cowboys out. But it was a bit like partitioning Ireland; the least workable of any solution, but the only one to which all parties would agree.

Then most financial advisers were tied agents, who sold the products of various companies without dealing with all the market. One OFT reading of today's market is that, in reality, this position hasn't changed. Many advisers claiming to offer a fully independent service don't trawl through the whole market to pick the best deal for their clients - but rely exhaustively on the products of just a few firms.

Initially, the OFT was anxious to dampen down any speculation that change was afoot. It maintained it was merely engaged in a routine review of the market, and might leave the status quo unchanged. But news that it plans to publish a range of recommendations would indicate that it is not happy with the current set-up, and that it has difficulties believing any advice paid for by an insurance company's commission can be truly independent.

There is a case that the market might function more efficiently if advisers were split into three, rather than two categories, as they effectively were in the old days.

Both the extremes would remain as now, but in the middle we would have a new group of multi-tied agents.

These could offer a range of options, without conscientiously studying the entire market. As a result their regulation, costs would be lower, enabling them to offer more competitive products. But they could not claim to offer top-quality advice. That would be left to the gold standard independents with access to every product on the market. But they who would be forced to charge a fee.

'The Independent' has published a free, 20-page 'Guide to Independent Financial Advice', which tells you the areas in which an IFA can help and how to go about finding one. 'The Guide', written by Nic Cicutti, this paper's personal finance editor, comes with a list of names, with their telephone numbers, to whom you can go for help. For a copy, please call 0117-971 2932