Crucially, the Treasury has insisted on commission disclosure by tied agents and insurance company salesmen as well as by independent advisers. This will help to explode the current myth that financial advice can be obtained for nothing if you go to the right quarters.
Independent advisers will be able to compete on equal terms. Right now, their image is dreadful - commission-crazy crooks whose advice is biased by a desire to get rich quick. By contrast, insurance company salesmen and tied agents have been able to imply that they are providing a free service. Yet they earn just as much and usually a great deal more, from hidden commission and bonuses. Soon, they will have to come clean.
Obviously there will be problems. The size of the commission earned for an apparently simple transaction will shock some people and trigger demands for some of the action. Forget about overheads, administration and the cost of providing advice earning no reward. Price competition will intensify. Perhaps there will be special sales offers - pounds 100 for an endowment policy for this month only or pounds 75 for a personal pension with XYZ Company.
The move to charging fees instead of commission will accelerate. Unfortunately, most of the public object to paying fees for advice given by people who have not qualified in the same way as accountants and solicitors, and this will limit charging, especially to poorer people.
Insurance companies may also revise the commission structure by demanding less up front, phasing it over a longer period. That may look better to customers but would be another blow to smaller firms relying on cash flow to pay their bills.
Nevertheless, I will be a happier man when full commission disclosure by everyone is introduced. It will sort out the cowboys among independent advisers. Most important, it will clear the very distorted picture now presented to the public.
The author, a former personal finance editor of the Financial Times, is now an independent financial adviser with Berry, Birch & Noble.Reuse content