Simon Read: Commission reforms don't go far enough

I've long been a critic of the commission system that is rife in the financial services industry. When you take out an insurance policy, pension plan or investment, the decision should be primarily based on finding the right account or policy for you, based on your needs, your attitude to risk, and your expectations.

But with the majority of financial companies paying fat commissions to advisers or brokers, the suspicion has always been that those products which pay the most commission will be the ones that are recommended to consumers.

You can trace the wholesale flogging of endowment policies in the Eighties and Nineties to the fact there was massive commission to be made from them. As millions learned to their horror, a huge number of endowment policies sold by commission-hungry salespeople proved to be totally unsuitable, leaving them unable to pay off their mortgage. In other words, commission is almost directly responsible for much of the mis-selling we've seen in financial services in the last few years.

So there's been some great news this week from the Financial Services Authority, the City watchdog. In a major shake-up of the advice industry, it is to outlaw commission-related payments. Its aim is to remove the bias that commission creates, forcing financial advisers to actually recommend the best products. The move means we should see an end to the confusion of people believing they are getting 'free' advice, when they are actually being charged hundreds of pounds through the commission the adviser is receiving from financial companies. However, the bad news is that the changes are only proposals at the moment and are not due to come into effect until 2012, three years away.

I also have a strong feeling that the FSA hasn't gone far enough in its proposed treatment of what advisers can be called. We need a system that allows consumers to understand in an instant what sort of person they are dealing with. They need to know that banks, for instance, are not friendly institutions dispensing wise advice, but profit-greedy financial shops eager to flog whatever loans or insurance policies they can.

Under the proposed new rules, the FSA says there will be a clear distinction between independent advisers and what the watchdog calls 'restricted' advisers. Independent advisers will be those who are free of any bias and who can recommend investments from across the entire range of the relevant market. All others will fall into the 'restricted' category, which is likely to include staff selling products in bank branches.

That still sounds too confusing to me. The FSA should simplify things even further by only allowing people offering advice to call themselves advisers. Everyone else should be labelled salespeople, as all they do is sell financial products. If people know they are being sold something, they are more likely to be wary of the seller's pitch, which is essential when making serious financial decisions.

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

Suggested Topics
FootballGerman sparks three goals in four minutes at favourite No 10 role
Rumer was diagnosed with bipolarity, attention deficit hyperactivity disorder and post-traumatic stress disorder: 'I was convinced it was a misdiagnosis'
peopleHer debut album caused her post-traumatic stress - how will she cope as she releases her third record?
A long jumper competes in the 80-to-84-year-old age division at the 2007 World Masters Championships
Radamel Falcao was forced to withdraw from the World Cup after undergoing surgery
premier leagueExclusive: Reds have agreement with Monaco
Arts and Entertainment
'New Tricks' star Dennis Waterman is departing from the show after he completes filming on two more episodes
tvHe is only remaining member of original cast
Life and Style
Walking tall: unlike some, Donatella Versace showed a strong and vibrant collection
fashionAlexander Fury on the staid Italian clothing industry
Arts and Entertainment
Gregory Porter learnt about his father’s voice at his funeral
Arts and Entertainment
tvHighs and lows of the cast's careers since 2004
Life and Style
Children at the Leytonstone branch of the Homeless Children's Aid and Adoption Society tuck into their harvest festival gifts, in October 1936
food + drinkThe harvest festival is back, but forget cans of tuna and packets of instant mash
Lewis Hamilton will start the Singapore Grand Prix from pole, with Nico Rosberg second and Daniel Ricciardo third
F1... for floodlit Singapore Grand Prix
New Articles
Life and Style
Couples have been having sex less in 2014, according to a new survey
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Senior BA - Motor and Home Insurance

    £400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

    Market Risk & Control Manager

    Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...

    SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

    £320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

    Head of Audit

    To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...

    Day In a Page

    Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

    Despite the result, this is the end of the status quo

    Boyd Tonkin on the fall-out from the Scottish referendum
    Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

    Manolo Blahnik: Flats, Englishness, and Mary Beard

    The shoe designer who has been dubbed 'the patron saint of the stiletto'
    The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

    Scrambled eggs and LSD

    Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
    'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

    'Normcore': Blending in is the new standing out

    Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
    Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

    New leading ladies of dance fight back

    How female vocalists are now writing their own hits
    Mystery of the Ground Zero wedding photo

    A shot in the dark

    Mystery of the wedding photo from Ground Zero
    His life, the universe and everything

    His life, the universe and everything

    New biography sheds light on comic genius of Douglas Adams
    Save us from small screen superheroes

    Save us from small screen superheroes

    Shows like Agents of S.H.I.E.L.D are little more than marketing tools
    Reach for the skies

    Reach for the skies

    From pools to football pitches, rooftop living is looking up
    These are the 12 best hotel spas in the UK

    12 best hotel spas in the UK

    Some hotels go all out on facilities; others stand out for the sheer quality of treatments
    These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

    Widespread fear of Isis is producing strange bedfellows

    Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
    Topshop goes part Athena poster, part last spring Prada

    Topshop goes part Athena poster, part last spring Prada

    Shoppers don't come to Topshop for the unique
    How to make a Lego masterpiece

    How to make a Lego masterpiece

    Toy breaks out of the nursery and heads for the gallery
    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
    Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

    Ian Paisley’s decision to make peace with his IRA enemies

    His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam