Advice? We'll need it just to find an adviser

More choice in where we turn for financial guidance could also bring more confusion, writes Sam Dunn

The publication of a book on financial advice just days before the advisers themselves enter a brave new world could well be considered canny marketing.

The publication of a book on financial advice just days before the advisers themselves enter a brave new world could well be considered canny marketing.

But the title, Be Your Own Financial Adviser, and the publisher, consumer group Which?, instead reflect grave doubt among the public about the value of paying someone else for guidance.

The financial advice industry does not enjoy a rosy reputation right now. The mis-selling of endow- ments, personal pensions, high income or "precipice" bonds, and split-capital investment trusts has badly dented consumer confidence.

But the Government is desperate to get us all to save and invest more for our own retirement. And to this end it has pressed ahead with "depolarisation", the new regime that comes into force on Wednesday and aims to give consumers more choice when they seek financial advice and to make it easier to compare costs.

After a six-month transition period, the new rules are replacing a system where consumer choice was "polarised" between tied and independent financial advisers (IFAs) - the former selling products from just one firm, the latter scouring the whole market. This has now been depolarised to establish another adviser type: "multi-tied".

These sales staff - most likely to be working already in high-street banks or to be former independent financial advisers (IFAs) who have changed the way they work - will offer pensions, unit trusts or income protection, say, from only a small, select panel of providers.

Meanwhile, any adviser wishing to advertise himself as independent must now offer you a choice: either you pay an upfront fee or he gets his money in commission from the finan- cial firm whose product he recommends and sells.

The fee can be hourly - ranging from £120 to £200 - or a prearranged sum specified in advance; commission that would otherwise be paid to the IFA is reinvested for you.

Similarly, all advisers - regardless of their status - must show you two documents outlining their costs, the types of product they sell and what kind of adviser they are. They will state the maximum commission they charge (compared with an industry average) and whether any financial firm, whose products they might sell, holds a large equity stake in them.

"We want consumers to ask advisers, 'What exactly am I getting here?' and get better all-round explanations," explains David Elms of marketing body IFA Promotion.

Two other new types of adviser will also emerge. Those who refuse to offer a fee option and levy only commission will be called "whole of market" - even though IFAs already seem to occupy this territory.

In fewer cases, meanwhile, "dual-authorised" advisers will be allowed to wear two hats, IFA or multi-tied, depending on their client bases.

All this choice, driven by the City regulator, the Financial Services Authority (FSA), will bring greater competition, it is claimed.

However, there are fears that consumers will be left more confused than ever and still wary of commission. Although IFAs can search the whole market, a question mark inevitably hangs over whether someone paid by commission is recommending what is best for customers, or what is best for his own wallet.

"There's no doubt that, for customers, this new regime is more complex," says Mick McAteer, senior policy researcher at Which?. "And with commission [still] in the market, people's perception of advice will never really change."

Which? has called for "root and branch" reform of the industry, championing a national, government-subsidised network of advisers. This is extremely unlikely to happen, although a radical move away from commission finds favour with some IFA bodies.

"Commission is costing us reputation," says John Ellis of the Personal Finance Society. "We do need to have a hard look at it. But we have to do so without creating the impression that IFAs are selling the wrong products."

One of depolarisation's key drivers has been the opportunity it has provided for high-street banks to become multi-tied and offer products from other companies. Consumers often turn to their bank for products or advice, and the FSA had hoped the change would allow people to benefit from greater choice and thus better-performing, more competitive products.

However, the reality is shaping up rather differently. Although banks such as Barclays and HSBC have decided to sign up a panel of other providers, rivals like Lloyds TSB and Nat West are sticking with their own. And those that have chosen the multi-tie badge don't always apply it to all their products.

For example, pop into your local HSBC for investment advice, and staff will be able to recommend funds from managers including Fidelity, Gartmore and Schroders. But if you want a pension or life insurance, you'll be offered tied advice and get one of the bank's own policies.

There have also been industry concerns raised over those IFAs who change to becoming multi-tied (even if 80 per cent have so far stayed independent). The suspicion is that instead of signing up a panel of providers offering the best products, some advisers are choosing those that pay the most commission.

When looking for financial advice, be as rigorous as if buying any other product.

On first meeting IFAs, ask questions about how they will be paid, and, if necessary, see if they're happy to let you talk to other customers. Paying an upfront fee will remove any suspicion of bias.

Whether independent, multi-tied or tied, your adviser must be regulated by the FSA; any complaints can be taken to the Financial Ombudsman Service.

www.financial-ombudsman.org.uk