Pension reform spells doom for financial advisers

THE GOVERNMENT'S pensions and savings reforms threaten the future of Britain's estimated 25,000 professional financial advisers.

Thousands of "independent" financial advice firms could disappear because the new-style stakeholder pension system, announced last week, deprives them of sales commissions - their lifeblood.

Under the present system they earn more by recommending savings and investment plans that pay the most commission but may not be the best deal for customers.

Under the new system, revealed by Social Security Secretary Alistair Darling in his Green Paper on pensions, the Government hopes to get millions more people into "end-orsed" savings, investments and pensions sold direct. Advisers will not earn bonuses by selling "endorsed" schemes.

Half the adults in the UK have no savings and four in 10 have no pension scheme. The first endorsed savings and investments go on sale next April with tax-free Individual Savings Accounts (ISAs). Savings accounts and stock market investments which meet the Government's fair deal definition will display a "CAT" mark (low cost, easy access and fair terms), allowing choice of scheme without the need for professional advice.

The Government has made no secret of its concern with sales of financial products. The commission system led to the personal pensions mis-selling scandal. Between 1988 and 1994 insurance salesmen and financial advisers on commission persuaded up to 2.5 million people to buy unsuitable pension plans.

Mr Darling said: "Many middle-earners and higher-earners want to save more and should save more. But they have lost faith in the pensions system because of the scandal."

Mark Howard, managing director of financial advice group Maddison Monetary Management, said: "Indepen-dent financial advisers have to wake up to the fact that you are going to have to be a big firm to be around. After ISAs and stakeholder pensions come in, the writing is on the wall."

The pension reforms are likely to come into full force during 2001, giving millions of people, including home-based carers and parents, access to a low-cost "stakeholder" pension scheme, offered through workplaces and direct from pension firms.

Larger financial advice firms are likely to survive by diversifying - for example, by selling on the internet - and offering advice to clients for fees. Firms which already sell direct say the changes are "very welcome".