An e-mail flew in to my in box this week which transported me instantly back to the 1980’s and those heady days of big hair, unfeasibly large shoulder pads and shiny suited insurance salesmen with mobile phones and bloated salaries.
The e-mail contained details of a tender for North Lanarkshire Council requesting bidders for the provision of independent financial advice for their employees. No problem so far, an enlightened local authority looking after the needs of its staff in a caring, sharing type way.
The time machine only started working as I read on and the document suggested, and I quote, that “the provision of independent financial advice is to be at no cost or liability to North Lanarkshire Council and there should be no charge to individual employees in respect of the advice service, although it is expected that the organisation will receive commission on product sales where employees chose to take up the options offered.”
Charge up the Quattro and get me another bottle of Perrier.
Alarm bells, or was it police sirens, went off in my head. Without wishing to be too hard on the Council’s well meaning intentions this whole proposal raises some pretty fundamental issues.
Firstly, that 20 years on, there seems an implicit suggestion that financial advisers continue to be remunerated with commissions that dramatically exceed the cost of the advice given and that anyone who wants it should be able to obtain financial advice for free! This is quite clearly no longer the case and with full commission disclosure, the compulsory option to pay by fees, and the imminent implementation of the FSA’s Retail Distribution Review it’s impossible to buck the system.
Secondly, the tender also asks that the adviser “run seminars and financial clinics at the request of North Lanarkshire Council, [and] provide free promotional literature in the form of leaflets, posters etc. for distribution to employees”.
The implication that the actual advice delivered will be of such low value relative to the “product sales” that there will be sufficient cross subsidy to allow costs for an all employee communications and seminar programme at the request of the council, raises other issues – such as just how much remuneration does the poor individual taking up the options offered need to generate to cover all of this and how competitive is what is being offered with what would be available in the open market?
Fundamentally a commission payment is an agreement between the client receiving the advice and the adviser providing it, not some short cut to employee benefits on the cheap, or a cross subsidy for an employer’s communication obligations. Commission, where paid, is of a much lower order than historically has been the case and tends to be spread over a much greater term of the contract with commission clawback a very real possibility where any agreed product is not maintained. It also has to be remembered that much of the best financial advice involves taking actions that do not result in any product sale.
Can the Council really justify this approach as being in the best interests of their staff?
This whole issue highlights some thorny issues about the difficulties of accessing quality advice in the modern workplace, but as a starting point a structured Financial Awareness and Education programme for employees, funded by the employer, would be much more 2009 and less 1989.
With the great strides made to professionalise the financial advice market and improve the quality of advice this really is, unlike ‘Ashes to Ashes’, a very unwelcome return to the 1980’s.