Financial advisers must be targeted

NO ONE likes to talk about it, but one of the big financial services issues is the way in which, in the run-up to de-polarisation, some of the major financial advisers are demanding millions of pounds from insurance companies for putting their products on a 'recommended' list.

It is apparently within the rules for them to make these demands and the insurers who rely on intermediaries to sell their products have little choice but to pay up - albeit through gritted teeth.

Again it proves the truth of the observation made this week by Jeremy Goford, now ex-president of the Institute of Actuaries, who pointed out competition in the UK savings industry was flawed because it was not rivalry between companies in serving the public but between companies to sign up intermediaries.

They do this primarily by paying them large lump sums, supplying them with equipment and computer software or by paying them high commission - and often all three.

Goford has done the public a service. Politicians, financial experts, regulators and everyone else repeat the refrain that customers should save and take advice on how best to do so. But this overlooks a fundamental fact.

Realistically, the only advice available to the bulk of the population is supplied by intermediaries who are on commission and what they recommend affects the financial return they get.

Just how perverted the system is was underlined when the industrywide agreement to regulate commissions was scrapped under Government pressure a decade ago, in the hope that this would lead to commissions being cut.

Unfortunately, the opposite happened. Commissions went up because the most powerful intermediaries could demand higher fees from product providers in return for continuing to sell their products. It is no wonder people lament they cannot get affordable, genuine, untainted financial advice.

The paradox is that insurance companies have been pilloried for pensions and endowments mis-selling and much else besides when the real culprits, the financial intermediaries who actually did the selling, have gone largely unpunished. This assumes the companies control the intermediaries whereas, in fact, they have never been able to. Nor has anyone else.

It is almost 20 years since Michael Howard piloted the first Financial Services Act through the House of Commons but successive regulators have still failed to find an effective way to address the difficulties caused by this flawed market structure.

The Financial Services Authority has never been able to get its head round distribution - finding it easier to blame the manufacturer - but it has to try because, with depolarisation, this is the next big issue.

Intermediaries must be brought into the net in a way that raises standards more than it creates bureaucracy, because restoring trust in them and financial advisers is a key plank in any efforts to restore trust in the financial services industry generally.

There is a very long way to go.

Filling chairs

ONE of the proposals of the Higgs Report was that companies should encourage their executives to take up non-executive positions in other companies as a way of broadening their experience and deepening the pool of directorial talent.

Man Group's Stanley Fink this week poured cold water on that idea. 'It was not a sensible thing for them to do,' he said.

He may feel a bit jaundiced because, among his colleagues, is Chris Chambers, a non-executive at collapsed car-bodies business Mayflower. But he has a point. The sheer burden of work and responsibility heaped on non-executives is not something to be taken on lightly.

Also aggravating the shortage of boardroom talent is the idealistic but impractical rule that no one should be chairman of two major companies at the same time.

It is hard to believe that the likes of Niall FitzGerald, having run Unilever for eight years, would not have the skill to handle two part-time chairmanships, but the rules say if he spends two days a week at Reuters - where he soon takes the chair - he can't do anything else meaningful.

The same rule stopped Sir John Parker, chairman of National Grid, from taking the chair at BAE Systems even though he was the ideal candidate. It is also the rule that means a growing list of big companies are looking for chairmen and can't find them.

Headhunters say the ban on multiple chairs is causing a disproportionate amount of difficulty and leading to questionable appointments. It does not work, so why not allow them to hold two chairs rather than one?