Smoke and mirrors
A very interesting question was posed by a participant in this lunchtime’s live webinar for Thought Leadership Live.
The participant pointed out that some Investment Bond products have a higher than 100% investment allocation rate which means that once the commission has been paid to the IFA the client ends up with an amount invested such that they incur no cost for the advice they have received.
He further went on to question how abolishing these types of products (as the FSA proposes to do from the 1st January 2013) could be “treating customers fairly”.
My response was that this is not quite as it seems.
The client does indeed still pay for the advice it is just that the charges are hidden and they are in the form of a combination of higher management charges and typically some exit costs if the client disinvests the plan during the initial years.
These are “smoke and mirror” products and that is not to say that they do not have their uses but we should use them with care and not for one moment suggest to the client that they are “without advice cost” products.
The simple fact of financial services life is that the consumer always pays. Most of us prefer the consumer to be able to see precisely to whom they are paying what. I don’t think that the abolition of these products is detrimental to the long term good of the consumer.