OFT's third way might just work

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The Independent Online
Maybe it is the silly season but personal finance keeps making the front half of the papers, rather than being tucked away inside the Sport section as usual. (A big welcome back this weekend to those fickle readers who abandon this part of the paper during the football close season).

Mis-sold endowments and unfair mortgages are still hot topics - see page 8 for Harvey Jones' account of his fixed-rate hell. But what you may have missed amid this frenzy was that the Office of Fair Trading (OFT) chose last week to launch an important report on the way we are sold financial services.

The OFT was investigating whether the present system of "polarisation" - meaning that salespeople either work for one company; or are totally independent - offers enough competition between advisers and the best deal for the buying public.

One option on the table was to recommend that only fee-charging advisers can call themselves "independent". The director-general, John Bridgeman, rejected this path, saying it could "cause confusion". Rubbish. This is an opportunity missed.

Many customers who visit IFAs don't fully understand how the adviser is paid. Unless clients are willing to pay fees (so far, few are) the advisers have to pile up the sales to generate enough commission to make a living. This leads to a bizarre cross-subsidy: for every nine people who take the useful advice sessions but don't buy a sausage, one sucker signs up for a pension and pays royally for it.

The OFT gets round the commission question by suggesting the new super- regulator, the Financial Services Authority (FSA) should look into whether advisers could make it clearer to customers that payment for their advice is included in commission. The other suggestion sure to go down a treat in the industry is that IFAs should tell customers they could share some of this commission with them.

The report concluded that the "tied or independent" distinction should be kept, with the option of a "third way" for some advice. This would mean salespeople who work for one firm could choose to sell stock market investments (ISAs, unit trusts and Oeics) from several companies. And an adviser who is independent for the purpose of selling you a personal pension could restrict his choice of fund manager.

Some IFAs only recommend a few managers. If they were to make that deal exclusive, they could get a better deal on payments. And many insurers and banks have a woeful track record when it comes to managing own-brand stock market investments.

It does make a kind of kooky sense.

Blue is the colour

As a shareholder in Loftus Road Plc, my wish for the new season is for Queens Park Rangers to win promotion (fat chance). I've gone right off blue hoops - buying blue-chip shares makes a lot more sense. The Motley Fool tells you how to spot the best top-notch companies on page 9.

n i.berwick@independent.co.uk