Julian Knight: Advisers must not get extra time to fill their boots at our expense
Sunday 28 March 2010
I've always hated the payment of commissions to financial advisers. Human nature being what it is, advisers are going to be swayed if they have a choice of recommending one product paying little or nothing over another offering a bumper upfront commission.
Every mis-selling scandal I have come across in my 12-year career has advisers' commission at its root. As we reveal on pages 90 and 91, the "epidemic" in the mis-selling of investment bonds (the word bond, with its connotations of safety, is often used to disguise a product which has little security) is fuelled by commissions, with providers telling advisers "look what you can earn if you sell our bonds".
On Friday, the Financial Services Authority published its final rules on how products should be sold, confirming that commission will be scrapped from the end of 2012. The excuse that has always been trotted out is that if commissions were banned and advice became chargeable fewer people would seek help with finance. I'm glad that, nine years into its life, the FSA has finally recognised this to be bunkum. If the price of advice is being mis-sold a duff product then perhaps people are best keeping their money in a savings account or with one of National Savings' index-linked products – or even under the mattress.
But having to wait until the end of 2012, leaves the industry and unscrupulous advisers more than two years to make hay. Some providers are paying commissions of 6, 8 or, in one case recently exposed by The Independent, 10 per cent to advisers. Providers know commission gets advisers to herd their clients to them, and that, once signed-up, investors are too nervy or too passive to move their money. As a result, commission's last gasp could lead to massive mis-selling, instead of an orderly winding down of the whole grotty business. The FSA says it is taking a more interventionist stance, so here is a test: examine the offered commissions and stop the providers' land grab and excessive payments.
A "blatantly political Budget" was one jibe (when are Budgets anything else?) another was that there was nothing in it. Well what did people expect? The next Budget, probably very soon after the election, will be the real barnstormer (unless there's a hung parliament). What the Budget confirmed is that Alistair Darling – this quietly spoken man-badger amalgam – is Labour's ace in the pack. He is surefooted, seems to genuinely like ISAs (which are now being up-rated with inflation) and has a gravitas that George Osborne can only dream of.
What I like about Darling is that he isn't Gordon Brown. What you see seems to be what you get, unlike his predecessor who buried nasties in double speak and obfuscation with almost religious zeal. It's rather nice to have a Chancellor who respects that the Budget should be a relatively open exposition of tax-and-spend policies – although Darling can't be too honest until after the election – he is still a politician. It's a pity that if Labour is re-elected he is likely to be replaced by Brown-lite Schools Secretary Ed Balls.
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