Some services are execution-only - the customer is sold a product without any advice. Others will conduct a full financial factfind over the phone and will attempt to advise the customer as to the best course of action. But other insurance and investment providers argue that even the advice- based services work from a superficial understanding of customers' needs and fail to give proper advice. The consumer may well be left in the dark about other options.
Using assumed names, we called three of the main phone-based services. We then gave the transcripts to Amanda Davidson of Holden Meehan, a firm of independent financial advisers, for her comments.
All the companies surveyed take details over the phone before providing you with a written quotation and application form through the post. The telephone call alone is not binding.
What we told them: Our caller claimed to be a 37-year-old man, self-employed, with no dependants, who wanted to invest about pounds 200 a month into a personal pension. He said he earnt pounds 35,000 a year, and expected to move between self-employment and full employment. He would therefore also be using employer-based pension schemes from time to time.
Reaction to original call: The Widows employee who answered the call took some basic details and asked if he could get an adviser to call back. The adviser called five minutes later.
Good points: The adviser took answers to a questionnaire over the phone and was thorough, friendly and relaxed. The process took about 40 minutes. He pointed out that he could only discuss Scottish Widows products. He also suggested index-linking pension contributions to cope with inflation.
Bad points: Although he pointed out that his company's self-employed pension would allow our caller to stop contributions while in an occupational scheme, he made no mention of the possibility of making additional voluntary contributions (AVCs) as a way of boosting pension savings while in an occupational scheme. The customer could do this either through his employer's AVC scheme, or by paying into a free-standing AVC scheme run by an insurance company. Ms Davidson says that he might be able to negotiate the redirection of his normal payments to a personal pension into a free-standing AVC at no extra charge.
Asked about the alternative of going to an IFA, the Widows adviser claimed commission charges would make that an expensive option in the early years. But many pensions now spread the commission charges throughout the life of the policy, giving it more value earlier by enabling more of the customer's money to be invested at the beginning. The Widows adviser also said: "I don't get any commission. I'm a salaried employee, and it's my job to give you advice." This is true as far as it goes but his pay is performance- related.
Ms Davidson's verdict: "What he's saying about his own incentives is awful. He's making out that they don't get any reward for selling. It's not representative of what's going on. As the caller was self-employed, I would also have asked if that pounds 35,000 was a turnover or a net profit figure. But, generally, he's reasonably sound."
Marks and Spencer
What we told them: We used the same 37-year-old self-employed man as an example.
Reaction to initial call: Our first call produced a recorded message explaining all operators were busy. After a short wait, our caller was asked to leave a phone number. He did so, explaining he wanted to discuss buying a pension. Four hours later he gave up waiting and called M&S again, this time getting through. The original call was returned after a five- hour delay.
Good points: Marks and Spencer's service is an execution-only one, which means its employees are not allowed to give any advice, something the M&S operator was quite clear about. The operator gave some very basic details (the conversation took about 10 minutes) and offered to put some information on the M&S self-employed pension in the post. On being prompted, he suggested that our caller should contact an IFA if he wanted any further advice on the scheme.
Bad points: He kept our caller hanging on the line for several minutes while he went to look for some literature, saying: "The person who deals with the funds isn't here at the moment."
Ms Davidson's verdict: "It was obvious that the person who took this call was just an order taker; there is absolutely no advice there. The service level was awful."
What we told them: Our caller claimed to be a 37-year-old married, self- employed man earning pounds 35,000 a year and interested in buying life insurance. His wife was pregnant with their first child. Replying to the company's health questions, he said he was a non-smoker, overweight and drank the equivalent of 25 to 30 pints of beer a week. He also mentioned a case of diabetes in his family.
Reaction to initial call: The Virgin operator who first handled the inquiry checked that our caller had Virgin's literature in front of him, then passed the call on to an adviser.
Good points: The Virgin adviser's questionnaire was thorough and took about 45 minutes. He pointed out that he could advise only on Virgin products. Virgin has an annual financial review system in place to cope with individuals' changing circumstances. The amount of life insurance and income protection cover discussed (half earnings) was realistic, and the quotes were reasonably competitive.
Bad points: The overall tone was impersonal, with the adviser appearing to recite the questions parrot-fashion. A spokeswoman says the company's advisers do not work from a script, but she accepts they may still sound stilted as this is a new operation.
The health questions were quite exhaustive, which makes this a complicated way to get a couple of simple insurance quotes - all that really came of this particular conversation. Virgin says this degree of detail is needed to produce a personalised quote, and argues that this means healthy customers can save money by not subsidising others. But this emphasis on risk differentiation can work against you if you have any health problems or have an unhealthy lifestyle. In the case of our caller, Ms Davidson was quickly able to find six life offices offering cheaper rates than Virgin's life insurance.
The company says callers with a firm idea of which Virgin financial product they want and exactly how much cover they need can be dealt with in about 10 minutes. The Virgin adviser also failed to suggest buying the life insurance through a pension, which would have given our caller 40 per cent tax relief on his contributions.
Ms Davidson's verdict: "They've got a limited product range, so they are geared towards that for a sale. They give you no pensions advice, because they have not got a pension to sell. I felt this was too computerised, and they needed to loosen up."