The high street is still full of salesmen paid via commission but masquerading as 'advisers'. We thought the Retail Distribution Review would put a stop to this, introducing a new regime of unbiased independent financial advice paid for through up-front charges rather than commission.
Yes, investors with substantial assets now pay for high-end independent advice via an up-front fee. But research from Fidelity and Cass Business School has found that consumers would need to have an average level of investible assets of £61,000 to make them commercially viable to an independent financial adviser. This cuts out 75 per cent of the population.
The building societies have stepped in to fill this advice gap by doing deals with product providers. For example, Legal & General is advising thousands of middle-income customers through over 1,300 high street branches of building societies across the UK. But Legal & General says its research found that those customers don't want to pay up-front for advice but still want to pay via commissions on products.
Now, I've got nothing against salesmen, particularly highly-qualified salesmen who are able to correctly match products to your needs and tell you exactly what you are paying in commissions. But L&G says it is telling the public that they are getting access to a 'full advice' service - customers who don't need this just get leaflets on savings products. While not technically against the rules (the regulatory term is 'restricted advice'), calling it 'full advice' is highly misleading when customers are only getting advice on one provider's range of products. It's really just a product consultation service. What was wrong with 'tied advice' under the previous regime? That better summed up this type of service.
Admittedly, the availability of commission-based 'advice' in building societies will ensure that some people who would otherwise have put all their money in cash and premium bonds will put some of it into equities. But this is a big missed opportunity to educate small investors about the value of true independent advice. It begs the question could that advice not be worth a sales process in itself?
The problem is that the quality of advice still varies enormously and can be better or worse between channels. Independent advice is a badge of quality but gives no real guarantee, as many of our readers will testify. The new restricted advice solutions will give really good advice in many circumstances.
For example, as an adviser tells me: "The main reason why previously independent financial advisers may now be classified as restricted is that they may not offer advice on every type of investment product on the Financial Services Authority's list. It is nothing to do with independence in the normal meaning of the word.
"I have always been independent, free of any tie to a supplier and basing my advice on what is best for the client, not what is best for me. However, I do not do life insurance policies and therefore can no longer call myself independent."
In the end we need to think more about the value of advice to our own circumstances as to whether it is restricted or independent. We need to educate ourselves to make sure that advice is worth paying for. If at a free introductory meeting you work out that you know more than the adviser then that should ring warning bells.
It is when you're starting out as an investor you are most vulnerable to high charges and bad advice. If you're stung by bad advice then you're unlikely to want to pay for advice ever again (see Susan Smith's reader portfolio).
So here's my advice for beginner investors: go for the simple things that you understand easily: a tracker fund, 10 to 20 FTSE 100 stocks, or a global growth investment trust - and always ask yourself if you're paying too much.
Read more comment articles by Moira O'Neill in Smart Money.