Best buys in name only

The advice you receive from an IFA may not be independent, writes Simon English

How truly independent is the independent financial advice you receive? Tens of thousands of customers at Bradford & Bingley might well ask themselves this question following a row between the building society and some of its rivals, who accuse it of only recommending the products of a handful of companies that pay commission to the society.

According to the rules laid down by the Personal Investment Authority, the financial watchdog, financial advisers can either be tied to one firm and sell only that firm's products, or be totally independent, recommending from all available products.

The problem is that most big firms of independent advisers screen the products offered to investors. These so-called best-buy panels are widely used by large IFAs, though some are embarrassed to admit it.

When business newspaper Money Marketing tried to publish the best-buy panel of Bradford & Bingley, the largest high street IFA, its response was to threaten an injunction.

Why is the society touchy? For some time Bradford & Bingley has differentiated itself from other lenders by stressing the independence of its advice. Unlike most societies, its 400-strong team of advisers is able to recommend the most suitable pension or investment rather than just one company's, or so they say.

Yet a leaked best-buy list shows that consumers who visit B&B to buy a pension of any kind get the choice of just six products - Commercial Union, Legal & General, Scottish Widows, Standard Life, Clerical Medical or Sun Life.

All of these companies are recognised and respected providers, but some experts claim the list is too short to constitute fully independent advice. So why do they do it?

Virgin Direct makes the point that all of the products listed pay commission to B&B. Why aren't any non-commission products recommended?

Virgin product development manager Martin Campbell says: "It is outrageous that customers who are told they are getting independent advice are being limited to just six pension companies out of the 70-plus in the market.

"I think these plans are a far cry from being the six best buys from a customer viewpoint and commission-free plans don't even get a look in."

So will you get good advice from B&B?

B&B's list is based on research into the performance of the fund managers. B&B makes the point that it spends thousands of pounds on researching which products best suit its clients. Best-buy panels are updated four times a year to keep companies on their toes.

The society claims to know precisely what kind of customers it gets and what kind of products they need. It is so confident of this, that for certain types of products there are only two options to choose from.

If you are not on our panel, B&B says, you just are not up to scratch. However, there are notable omissions from the panel.

Equitable Life, NPI, Scottish Equitable and National Mutual Life are reckoned by most experts to be leading providers of pensions, but B&B doesn't think so.

Marketing manager Lynn Colman says: "We start with the same universe as everyone else, but we screen lower. As we know our client base and what our customers' needs are, using best-buy panels enables us to look at the best products for our customers."

The plus point is that B&B is able to get deals for customers by being able to promise bulk sales. This could mean that it negotiates lower charges or special product enhancements.

On the downside, it could also mean that the society can demand high amounts of commission. Companies desperate to buy business and force themselves onto panels are offering higher and higher commission rates, up to 40 per cent more than that paid to small IFAs.

It would be a matter of grave concern if the best-buy tables started to reflect the providers with the deepest pockets rather than the best products.

B&B's rivals among IFA firms claim that six companies is far too short a list to pick from and that the use of best-buy panels makes a mockery of independent advice.

Charles Levett-Scrivener at leading IFA firm Towry Law says: "If their advisers have got so few options, how can it be independent advice, even if they are good options?"

The PIA says it keeps a close eye on best-buy panels and will stamp down hard on any IFA which gives more than 20 per cent of its business to one company.

Spokeswoman Sarah Modlock says: "Firms must ensure that clients receive suitable advice.

"Clearly this would not be the case where an independent firm restricts itself to using the same small number of product providers and refuses to discuss products of firms outside that group."

For consumers, the question they ought to be asking next time they speak to a supposedly independent adviser should be: "Who else could you have recommended and how independent are you?"