Taking out a mortgage on your home, finding the right pension plan or sorting out a savings account for your children are all areas where you shouldn't take any risks, so seeking out an independent financial adviser (IFA) who can help you to sort through all the different deals is supposed to be the best play.
However, if your adviser is more concerned with securing themselves a bumper commission rather than finding you the best deal, you might find yourself mis-sold and, on top of that, you could be paying your IFA commission for the privilege.
Successive mis-selling scandals from personal pensions and endowments to the more recent high income bonds have all had one common denominator: the payment of commission.
Currently, if you buy a product from an IFA you have two options: you can either pay a fee for the advice, or the adviser can receive commission on the product you take out. This means that if an adviser has two more or less identical financial products but one gives them high commission, then they're far more likely to push that one, which can lead to the supposedly independent advice you receive, being biased.
But this is meant to change. From the start of 2013 the Financial Services Authority is implementing its Retail Distribution Review (RDR). From then on IFAs will be required to have qualifications that are equivalent to a certificate in higher education, for example, an NVQ at level four or above. And most importantly, the changes will also end commission; instead, customers will pay a set fee for the advice they receive.
Although it agrees with the changes, the powerful Treasury Select Committee recently sparked controversy by calling for a 12-month delay to RDR. The chairman of the committee, Andrew Tyrie MP, said that the changes risked "putting large numbers of experienced financial advisers out of business". The call was lambasted by consumer groups and rejected by the FSA almost as soon as it was made.
In particular, the fear among MPs and others is that some experienced advisers will simply refuse to retrain, deciding, more than likely, to retire.
No one is sure precisely how many advisers are set to leave the industry or have already departed. Back in 2007, the insurer Zurich estimated one in 10 could go, a figure also parroted by the FSA, but that now may be underplaying things.
The head of product sales at one of the UK's big five banks told The Independent on Sunday that they were working on the premise that as many as a quarter of all IFAs will cease to trade either prior to the RDR changes or soon after. Another major concern is that, with the banning of commissions, large numbers of IFAs are going to focus on those with the deepest pockets. They would morph from IFAs dealing largely with clients among the professions and everyday life into wealth managers with a few very wealthy clients.
In effect, what may well happen is that a wasteland of advice is created with fewer options for those on middle incomes and with more everyday ambitions such as what to do with their retirement savings pot. They would have to rely on bank and insurance sales staff for advice – a potential path to mis-selling.
Stephen Gay, the director general of the Association of Independent Financial Advisers (AIFA), believes that the RDR will result in advisers leaving the industry. He said, "There will be two tranches: people who leave – who won't be able to trade as they will not have the required qualifications – and those who, over a longer period of time, find it more difficult to work with transparent, non-commissioned-based charges."
The reduction in IFAs will no doubt have an effect on those needing advice on decent but affordable financial products, and the introduction of upfront consumer fees, may prove too difficult for some people to fund.
Mr Gay suggests that with or without the delay, the industry will experience a slight U curve in the number of people working in it, with a drop expected after the RDR officially comes into use in 2012. When asked how many financial advisers he expected would leave, he said, "The FSA's suggestion of about 11 per cent seems accurate, although it will be more difficult to tell over a sustained period of time."
This means that the RDR, whenever it is introduced, will potentially bring a significant lack of qualified, keen advisers who are able to provide a service that is fully equipped to deal with the demands of the financially strained middle classes.
"AIFA is supportive of the principles and objectives of the FSA, as it is important for the customer to understand clearly what they are getting and what they are paying for," said Mr Gay. "However, even the best of reforms can go wrong if they are badly implemented, and any delay would help those who are close to achieving their qualifications but can't quite manage it by the deadline."
But Adam Phillips, the chairman of the Financial Services Consumer Panel (FSCP), disagrees. "Over the past four years, independent financial advisers have already taken steps to meet the qualifications required by the RDR, with nearly half having already obtained the appropriate qualifications, and with at least 90 per cent having achieved the required standard by the 2012 deadline."
Any delay, Consumer Focus warns, could lead to some IFAs indulging in sharp practices by selling products prior to December 2012 which pay bumper trial commissions (in effect, payments that carry on for the term of a policy or pension plan which can be 10, 20 or even 30 years).
"We are concerned that some IFAs might be trying to build up trial commissions in the run-up to the implementation of the RDR. Delaying RDR could leave more consumers paying ongoing annual fees to their financial advisers," a Consumer Focus spokesperson said.
Join our new commenting forum
Join thought-provoking conversations, follow other Independent readers and see their replies