The financial services industry has long had an issue with professionalism. Whilst accountants and solicitors have always charged fees for their professional services, insurance brokers, mortgage brokers and financial advisers have all had a problem with fees, their remuneration glossed over and ranging from tiny to huge regardless of the amount of work involved. 

Interestingly, the Financial Services Authority could be helping with this issue. In fact, the whole endowment mis-selling fiasco could also help with this.

If you examine the situation, the thinking is not that radical; as an industry we should definitely capitalise on these ideas.

Take mortgages…

When a lender (not offering independent advice) offers a mortgage directly to the client, they simply ensure that the potential customer meets their lending criteria. No account is taken of lifestyle, ambitions nor extenuating personal circumstances. Furthermore, there is little choice of product, no bewildering array, the customer has to make a decision based on the facts presented, there is no comparing and no advice given. The lender might rave about the greatness of their offerings and highlight all the benefits, but they aren’t telling the customer what else is available and if the benefits are actually meaningful for that individual customer.

Contrast that with a mortgage sourced from an independent mortgage broker. A broker offering ‘whole of market’ or a ‘wide range’ of mortgage products. These brokers generally indulge in the quaint practice of ‘getting to know’ their customers, which is now compulsory! Better than that, the quality of their advice, the clarity of their documentation and their commitment to fair treatment of their customers are all enshrined in regulation so that if they fail to perform or their recommendations do not meet expectations, then there is redress at law for the customer! Surely this huge responsibility is worth paying for? These liabilities hanging over the brokers must surely make them the most diligent of professionals.

So, when making the biggest financial commitment that most people ever make in their lifetime, often in excess of £100,000, maybe over three times their annual salary, why ever would anyone flinch at paying a few hundred pounds to make sure that the chances of the product being suitable and performing as expected were maximised? This is a few hundred pounds versus a potential nasty surprise measured in tens of thousands of pounds such as investments not repaying the interest only mortgage that was so much more affordable at the time, or a huge early redemption penalty hitting home at a time when a sale was forced due to already straightened circumstances in several years time, …surely a worthwhile investment. Given that different mortgages can vary hugely in the cost of borrowing this is yet another reason to invest a few hundred pounds in professional advice.

Exactly the same principles apply to general insurance right down to the common or garden private car policy. All these are the same, right? You have just bought a brand-new car, the car of your dreams. The car is stolen/written off by your partner/vandalised badly within a week of purchase. Would you like:

a)     to have a new one of the same model and colour delivered asap?

b)     to receive current market value complete with VAT and immediate depreciation?

Would the difference between these two options be comparable to say saving £100 on the premium?

If you had used a broker and the broker recommended the policy and it didn’t replace your car as in a) above, you would have recourse! It is part of a broker’s business to notice ‘new cars’ and policy wordings. If you had trawled the internet to get the best possible price, then you are also responsible for reading the policy wording and checking that it meets your requirements – even the ones you didn’t know you had! No redress here.

Extending this example into the commercial insurance environment you can see that there may be something worthwhile in the broker’s role. Although only very small businesses and private individuals have the benefit of recourse to the Financial Ombudsman Service, there remain the same principles at work whenever an insurance broker is arranging covers.

The greatest liabilities of all are laid on the Financial Advisers. A botched general insurance policy is only for a year; bad investment advice can affect clients far into the future and have no easy remedy.

Hence regulation of Financial Advisers has been in place for much longer. The industry that has sprung up around ‘endowment mis-selling’ has generated much publicity and is a prime example of redress in operation.

Given the publicity surrounding endowments and the fact that many people  have received compensation, even though the shortfall in  their endowment policy may only be a prediction and not a reality, surely the public must be reassured that an industry bearing such responsibility for the products they sell has got to be giving a good and valuable service. The endowment situation should now be turned around and used as a promotional tool to illustrate how accountable the industry is and therefore the enormous benefit for customers in using financial advisers.

For all types of broker, demonstrating the high standards demanded of them should act as a supreme selling point for their services, so that come the day when commission disclosure pushes everyone towards fees, those fees will be seen as justifiable and value for money. Surely recompense for taking on such onerous liability is in order and the great guarantee that regulation offers clients should be something that brokers shout about loudly and clearly alongside the quality of their advice and their wide range of products.  So advisers, all fight back against the direct writer, the single offering, the non-advised sales!