For those young whippersnappers who have joined the IFA industry in, say, the last 10 years, you may be wondering why compliance seems so heavy handed and intrusive.
Some clever physicist or another (or possibly Elmer Fudd) once pointed out that every action has an equal and opposite reaction. The regulation that we have today is very much a reaction to activities of financial advisers in the past.
So what were these nefarious activities? I thought it might be fun to reminisce for a while, and to list some of the tricks and bad products that I have seen in order to maximise commission during my 25 years in the biz, first as a broker consultant, and for the last 15 as an IFA.
- Invest a lump sum into a bond (5.3% commission), take out the 5% withdrawals to fund a 10 year savings plan (with maximum upfront commission)
- Regular contribution to pensions written with normal retirement date of 75 (the longer term increased the initial commission)
- The (nameless) provider offered a savings product which gave around 90% surrender value after two years. So the idea was: get a client wanting to make a lump sum investment (say, £100k), and set it up as a regular savings plan, with £50k annual premium. Huge initial commission, go half and half with the client, cash in after two years. Kerching!
- Endowments. Paid initial commission when regular PEPs did not – minor detail that endowments were taxed at source whereas PEPs were not
- Company makes profit and wants to save corporate tax, adviser recommends pension. Adviser fills out form for client. Adviser ticks the ‘annual premium’ box instead of the ‘single premium’ box, hey presto, huge initial commission
- Regular savings PEP. 2 year nil allocation period (premiums in first 2 years go to pay commission).
- Bond v Unit Trust = 5.3% v 3% upfront commission. No brainer which one to recommend to the client! (Hang on, is it possible that this could still be happening?)
- The promise of guaranteed inflation beating returns with capital guarantee in addition (but doesn’t that sound a bit like Arch Cru…)
- A sales manager at a bank asking one of their advisers to quickly sign up a client who has just informed them of a serious illness as he had a monthly target to reach (wait, I heard about that one just a few weeks ago…)
Maybe we haven’t come quite as far as we think we have!
SERIOUS NOTE – if you’ve got any stories of dodgy selling tactics from the ‘good old days’, please put them below in comments. Let us salute the passing of an era…. Hopefully!