There are enough challenges in personal finance without us having to worry about whether the advice we are being given is truly independent.

In theory, we shouldn’t have to worry. We now have a regime under which advisers have to declare how independent they really are. (You can read more about this on pages 2-3 of this section).

Under this new regime, it is supposed to be obvious whether your adviser is giving you advice on the whole market or whether he or she can only sell the products from a small band of companies.

The reality, however, is rather blurred. Many independent financial advisers are now members of nationwide alliances, often referred to as networks. These groupings
are designed to give smaller firms of IFAs a central resource in areas such as training and administration.

But these networks also provide research on products and funds. In many cases, these networks run their own “panels”, which are lists of preferred product providers.

In some cases IFAs very rarely stray off these panels. But even where they do, most of their product sales are from companies on panels.

It is easy to see why so many investors are confused. At the very least, the distinction between IFAs and “multi-tied” advisers, who can only sell products from a small number of companies, is blurred.

What makes this situation even more disconcerting is the ownership structure of firms of financial advisers. Some of the big financial services product providers such as Aegon and Skandia have stakes in firms of financial advisers. And surprise, surprise, in some of these cases at least, these companies also appear on the panels of the firms they own.

Now I am not a total critic of panels. It is hard to keep up with the seemingly constant changes in tax regimes and the regulatory environment, let alone developments in stock markets and new product launches.

For small firms of IFAs, which are unable to specialise in areas such as pensions or investments, having a central resource which researches products is highly valuable. Many of the networks have teams of researchers who look at everything from financial strength and charges to fund performance before they compile their various panels. Networks will tend to have panels for different products too. So a company may appear on a pensions shortlist but not on one for life insurance.

The problem is that the process of compiling panels is not entirely open. Some networks are reluctant to reveal which companies are on their panels. And how these decisions are reached is also rarely transparent.

There is no doubt that a great deal of excellent independent research goes on at some networks. But given the distribution power of some of these organisations – some networks literally represent thousands of individual advisers – financial services companies are understandably desperate to get on panels.

One way for companies to increase their clout is to just buy up a network. Another is to increase their commission payouts. In some cases financial services companies on panels pay significantly more than the market average in commission.

These companies justify these higher payouts by saying they are getting much better business from networks that run panels. They argue that the extensive research that goes into compiling panels and advising clients means that advice is much better. This in turn means that policies are far less likely to be cashed in early, which means business is more profitable.

There is some argument to this. But the main issue is that this is all rather confusing for investors. If you are getting advice from an IFA that is also a member of a network, ask who owns the network and how the panels are compiled. If you are at all uneasy, ask them to go off panel. Or just go somewhere else.

Cheque clearing

On a cheerier note, the Office of Fair Trading this week announced it is to lead a taskforce looking into the time it takes for cheques to clear. The industry has already committed to cutting clearing for electronic transfers to the same day. This will take effect in about 18 months from now.

But it is still a mystery to me why it takes three days for cheques to clear. Except of course that it nets the banks millions of pounds a year in interest.

rob.budden@ft.com

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