David Prosser: Financial advisers up to their old tricks

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The Independent Online

Outlook It is now 20 years since the height of the first great personal pension mis-selling scandal, which saw tens of thousands of people conned into opting out of generous occupational pension schemes into less-attractive insurance company-run plans. The result of that scandal, which persisted for six years between 1988 and 1994, was a massive effort to compensate the victims and the first of many shake-ups of the regulatory system.

In that context, the warning issued yesterday by Consumer Focus is profoundly depressing, even it is predictable. The group effectively accused independent financial advisers of telling their clients to change personal pension providers simply to earn a commission from them. "Churning", as it is known, is one of the oldest tricks in the book and Consumer Focus says it is continuing.

It's hardly the first time, in recent years, that these claims have been made. The Financial Services Authority, the chief City regulator, said the same thing three years ago. Indeed, the industry has periodically faced new accusations of churning ever since the first personal pension scandal.

How, then, to put an end to such misdeeds. Well, one way would be to tell financial advisers they are no longer permitted to charge sales commissions – that they must ask clients to judge whether the fees they charge for their time are justifiable, rather than being paid by product providers.

That, of course, is what the retail distribution review aims to do. This latest shake-up of regulation is due to come into force in January 2013 and, among other things, will outlaw sales commissions.

Financial advisers, the poor lambs, are not thrilled. And there is now a concerted campaign to persuade the FSA to delay the new rules for a year – a campaign, rather surprisingly, that last week won the support of the Treasury Select Committee.

The FSA, to its great credit, is sticking to its guns. Quite right too – advisers have had plenty of time to get to grips with the new regime and the latest work of Consumer Focus suggests the new rules can't come soon enough.