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; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Suggested Topics
News
election 2015The 10 best quotes of the campaign
News
A caravan being used as a polling station in Ford near Salisbury, during the 2010 election
election 2015The Independent's guide to get you through polling day
News
people
Voices
David Blunkett joins the Labour candidate for Redcar Anna Turley on a campaigning visit last month
voicesWhat I learnt from my years in government, by the former Home Secretary David Blunkett
Finacial products from our partners
Property search
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Ashdown Group: Editor-in-chief - Financial Services - City, London

    £60000 - £70000 per annum + benefits : Ashdown Group: A highly successful, glo...

    Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

    £25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

    Guru Careers: Management Accountant

    £27 - 35k + Bonus + Benefits: Guru Careers: A Management Accountant is needed ...

    Guru Careers: Project Manager / Business Analyst

    £40-50k + Benefits.: Guru Careers: A Project Manager / Business Analyst is nee...

    Day In a Page

    General Election 2015: ‘We will not sit down with Nicola Sturgeon’, says Ed Balls

    'We will not sit down with Nicola Sturgeon'

    In an exclusive interview, Ed Balls says he won't negotiate his first Budget with SNP MPs - even if Labour need their votes to secure its passage
    VE Day 70th anniversary: How ordinary Britons celebrated the end of war in Europe

    How ordinary Britons celebrated VE Day

    Our perception of VE Day usually involves crowds of giddy Britons casting off the shackles of war with gay abandon. The truth was more nuanced
    They came in with William Caxton's printing press, but typefaces still matter in the digital age

    Typefaces still matter in the digital age

    A new typeface once took years to create, now thousands are available at the click of a drop-down menu. So why do most of us still rely on the old classics, asks Meg Carter?
    Discovery of 'missing link' between the two main life-forms on Earth could explain evolution of animals, say scientists

    'Missing link' between Earth's two life-forms found

    New microbial species tells us something about our dark past, say scientists
    The Pan Am Experience is a 'flight' back to the 1970s that never takes off - at least, not literally

    Pan Am Experience: A 'flight' back to the 70s

    Tim Walker checks in and checks out a four-hour journey with a difference
    Humans aren't alone in indulging in politics - it's everywhere in the animal world

    Humans aren't alone in indulging in politics

    Voting, mutual back-scratching, coups and charismatic leaders - it's everywhere in the animal world
    Crisp sales are in decline - but this tasty trivia might tempt back the turncoats

    Crisp sales are in decline

    As a nation we're filling up on popcorn and pitta chips and forsaking their potato-based predecessors
    Ronald McDonald the muse? Why Banksy, Ron English and Keith Coventry are lovin' Maccy D's

    Ronald McDonald the muse

    A new wave of artists is taking inspiration from the fast food chain
    13 best picnic blankets

    13 best picnic blankets

    Dine al fresco without the grass stains and damp bottoms with something from our pick of picnic rugs
    Barcelona 3 Bayern Munich 0 player ratings: Lionel Messi scores twice - but does he score highest in our ratings?

    Barcelona vs Bayern Munich player ratings

    Lionel Messi scores twice - but does he score highest in our ratings?
    Martin Guptill: Explosive New Zealand batsman who sets the range for Kiwis' big guns

    Explosive batsman who sets the range for Kiwis' big guns

    Martin Guptill has smashed early runs for Derbyshire and tells Richard Edwards to expect more from the 'freakish' Brendon McCullum and his buoyant team during their tour of England
    General Election 2015: Ed Miliband's unlikely journey from hapless geek to heart-throb

    Miliband's unlikely journey from hapless geek to heart-throb

    He was meant to be Labour's biggest handicap - but has become almost an asset
    General Election 2015: A guide to the smaller parties, from the the National Health Action Party to the Church of the Militant Elvis Party

    On the margins

    From Militant Elvis to Women's Equality: a guide to the underdogs standing in the election
    Amr Darrag: Ex-Muslim Brotherhood minister in exile still believes Egypt's military regime can be replaced with 'moderate' Islamic rule

    'This is the battle of young Egypt for the future of our country'

    Ex-Muslim Brotherhood minister Amr Darrag still believes the opposition can rid Egypt of its military regime and replace it with 'moderate' Islamic rule, he tells Robert Fisk
    Why patients must rely less on doctors: Improving our own health is the 'blockbuster drug of the century'

    Why patients must rely less on doctors

    Improving our own health is the 'blockbuster drug of the century'