So you give up your hard earned, your life savings and/or your pension to an investment firm. Authorised by the FSA, experts in the field, their advertisements say they will make your money work harder for you/get better returns/grow…. notwithstanding the risk warning. They make a charge for their expert services, fair enough, however, they then proceed to lose your money hand over fist! You would have struggled to spend it this fast. Some fund managers even gave your money to a crook and charged you for doing so! Surely to charge for managing peoples money means you are going to do it diligently and well.  If you don’t, then you deserve to be sued. This isn’t about equity markets going up and down, this is about doing the basic stuff you are being paid to do, due diligence and market watching. Otherwise we’d all do our own investing; it’s a bit like employing plumbers to instal system because we don’t know how and haven’t got time, if they mess up then we ask for it to be fixed or our money back. What is going to be the ‘fund managers’ defence’? This will be interesting.

The RDR feedback report looks good, set to revolutionise the FS industry and create a new profession on a level with solicitors and accountants, but will it work? It is difficult to change things overnight, or even by 2012, although some things have changed dramatically in the financial arena in the last 12 months. Public perception of banks has certainly been changed, so this is probably a good time to attempt a radical sea change in the way financial services operates and we can be sure that this will knock on into the mortgage and insurance advice industries. Basically, the FSA would really like to ban commission, this is in the pension and investment industry initially although the same arguments apply to insurance and mortgage sales. The only way for advice to be properly impartial is for a fee to be charged. Simple as that, so what is stopping it from happening?

The first problem is the ‘bank and insurer’ lobby which represents at least two thirds of the noise in the FSA’s ear. AIFA being the other. This has already manifested itself in the dilution of the polarisation between advice and sales that the FSA want to make clear to consumers. ‘Advised sales’, put there I am sure to appease the banks and insurers who only sell their own products, is simply a nonsense. No matter how well qualified the sales adviser is, if he has access to only one product he can’t use his knowledge to provide proper advice, therefore he should not be called an adviser! Unless of course he is going to recommend customers to go elsewhere – I really can’t see that! Surely a conflict of interest here, being educated to be able to give independent advice, but not being allowed to as part of ones job specification?

The next problem is the customer. All customers of brokers and advisers, be they consumer or commercial, do not expect to pay a fee except at the high end of the business. Regular Joe’s appreciate IFAs, mortgage advisers and insurance brokers BECAUSE IS COSTS THEM NOTHING TO USE THEM. This is their perception. They know about commission and proc fees and THEY DON’T CARE. So many are attracted by this free advice and they accept that if they purchase, the adviser will be remunerated. With accountants, there is a different view. A lot of people will avoid using them. Those that do will do so knowing that they are buying something they cannot do themselves and getting value in paying less tax. Everyone thinks they can arrange insurance on the other hand and would not dream of paying for advice, even if that advice saved them money and hassle. If the commission sale is to be abolished, then it must be abolished across the board. There can’t be exceptions for this to become on a par with accountancy.

We need to decide if commission is a bad thing or not. It is everywhere, affiliate schemes abound all over the net for example. This is people getting paid for introducing customers, is this bad? Third parties who put buyers and sellers together are necessary, they can save people a lot of time and hassle and add some advice to the process. There is value for the seller, who is paying for someone to market his wares and value for the buyer who is being directed to the seller of an item they want. So commission is equitable so long as it isn’t causing undue influence.

There again, commission causes pressure to sell otherwise all the advice has been given for nothing. You wouldn’t catch a solicitor doing that! Fees are therefore much fairer to the advisers and brokers and to the client they mean impartial and therefore best advice.

My conclusion therefore – a radical overhaul of consumer and business perceptions is needed and it needs to spread beyond just financial services and insurance. The FSA may well help with the PR on this one, but it’s going to take a fundamental shift in the mindset of the buying public to gain acceptance of fees.