Not so well, argues financial journalist David Prosser – though eliminating commission bias would certainly help.
Do Britons trust and respect independent financial advisers? The Personal Finance Society, one of the industry’s professional bodies, doesn’t think so: it is so worried about what people think about IFAs that earlier this year it launched a new campaign to improve consumer perceptions.
If the campaign succeeds, the PFS will have pulled off one of the greatest ever public relations tricks, for the lack of trust in IFAs has dogged the sector for decades.
Put “trust in IFAs” into Google and you’ll find three damning surveys on just the first page of results: the first, an Insurance Times report from 2000, reveals that “the public don’t yet trust IFAs”; six years later, research conducted by Standard Life reported: “we don’t like saving and we don’t trust IFAs”; and as recently as this year, Citywire research revealed that “only half of clients would recommend their IFA”.
It doesn’t take a rocket scientist (or even a Financial Planning Certificate) to work out why IFAs are so poorly regarded. In the 20 years I’ve been writing about personal finance, a new scandal implicating IFAs in bad practice or outright dishonesty has emerged roughly every two years. From mortgage endowment malpractice to personal pension mis-selling and from precipice bonds to split-capital investment trusts, the list of shame is a lengthy one.
Nor is it just during these periodic one-off episodes where advisers have let down their clients so badly. A whole generation of IFAs has lived high off the hog of commission – both initial and trail – invariably offering their clients poor service, bad value and, worst of all, results and returns that have been mediocre at best.
That’s not to tar all advisers with the same brush. I’ve come across many talented, committed and trustworthy IFAs who were (and are) doing a fantastic job for their clients. But these advisers have been in the minority – the good apples in a bad barrel – and their professionalism hasn’t been sufficient to drag the reputation of the sector as a whole out of the mire.
You will forgive me, then, if I’m sceptical about the PFS’s PR initiative. What advisers need, rather than a marketing campaign, is a sustained scandal-free period during which clients feel they’re getting what they pay for.
The good news is there is more chance of this happening than at any time in living memory. The Retail Distribution Review introduced at the beginning of this year has the potential to hugely improve standards – and, therefore, public perceptions, though this will take time.
The elimination of commission bias is crucial. How can any profession that gets paid to favour the products of certain providers be seen as having integrity? Higher qualification standards will be crucial too. There’s a reason people respect lawyers and accountants, but not IFAs – they know the former professions only admit people who’ve spent many years studying to practice.
And if, as expected, the RDR does result in a significant reduction in the numbers of IFAs – some analysts predict a third will leave the sector – that’s a positive development too. Those who quit will be the IFAs who are unable to prosper in a world of greater professionalism and transparency.
I have just one caveat. The danger of RDR is that far fewer people will access independent financial advice. Perceptions amongst those who use the sector may well improve, but plenty more will not be able or willing to pay fees – and their exclusion from an improved IFA sector will be to their detriment.