fear of finance

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The Independent Online
The Office of Fair Trading is generally reckoned to be a staunch defender of consumers' interests. It has been responsible for far-reaching reforms of how financial products are sold, including a requirement for companies to disclose the charges they impose on their policies.

Such reforms, plus the hard-hitting reports produced on a range of issues, from warranties on electrical goods to with-profit endowments, help keep companies on their toes.

At the same time, some of its officials are capable of the most crass errors of judgement. Elsewhere in this section, Neil Baker describes how the OFT has acted to scrap a maximum commission agreement on the sale of second-hand endowment policies.

Until now, any adviser acting on behalf of a client wanting to buy or sell such a policy could not charge more than 3 per cent commission. The OFT has now stepped in, arguing that such a policy is uncompetitive. By banning the deal, it hopes advisers will be prepared to offer cheaper deals.

That is the theory. What is the practice? Well, in the early 1990s, the life and pensions industry operated a similar maximum commissions agreement. For all its imperfections, the system worked reasonably well - until it was scrapped on the grounds that it prevented people getting an even better deal.

So what has happened to commissions since then? The average rate paid to advisers has risen in the past five years by up to 50 per cent, well ahead of inflation.

Who was responsible for scrapping the old commissions agreement? The OFT.

How do we know about what has happened to commissions? Because, by a supreme irony, the OFT's very success in forcing companies to disclose how much they pay their advisers also demonstrates the extent of its failure to control the amount.

Who was it that pointed out how history has a tendency to repeat itself, first as tragedy, then as farce?

Journalists are often seen as cynical creatures. I wonder why? This week I received a letter from Cigna, the insurance firm.

"Dear Nic," it intoned. "Christmas is a time of great enjoyment, with houses full of fun and laughter, especially if you have young children about. However, it is a sad but unavoidable fact that accidents still happen in the festive season..."

The letter goes on to tell me about Cigna's policies which, for pounds 5 a month, will pay up to pounds 50,000 for accidents, including the loss of a child's sight.

As an exercise in cynicism, nothing beats this little missive. To think that we chop down trees for this.

Nic Cicutti

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