Why are salesmen working on commission allowed to call themselves restricted advisers?

This thought has been stuck in my head since I watched a video of an elderly couple saying that talking to their adviser – who was actually a salesman – felt like having a friend in the industry. I can only assume they were reading from a script.

The video was part of a presentation by Legal & General, purveyor of investment products and a FTSE 100 company, to explain the deal it has struck with various building societies to provide in-house financial advice.

The first warning bell sounded when it said customers “would not pay anything for advice unless they bought something”.

“Free” advice, like free banking, appears to be a myth that refuses to die.

But what I found more shocking was the admission from L&G that it pays its advisers commission based on their sales of its products. Oh, and that L&G gives a slice of money made from selling products to the building society it works in.

To recap, that’s two separate commissions that depend on you, the building society customer, buying something.

As Merryn Somerset Webb wrote last week, the newly implemented retail distribution review was supposed to usher in a golden age of unbiased, reliable, professional advice paid for through transparent, upfront charges.

And it has, in a way. Making advice charges clear and setting higher qualification standards is a very good thing.

But it has also created a situation where salesmen call themselves “restricted advisers” because they have passed the same exam as an adviser who specialises in one area, such as pensions. Restricted advice covers such a huge range of services that it’s becoming a useless description.

The largest building societies all offer restricted financial advice to customers hope to scoop up some of those “advice orphans” turned away by big firms because they don’t have enough money to invest. Most societies charge a relatively uniform initial advice fee of between 3 per cent and 3.5 per cent.

But they aren’t acting alone. While many companies were stuffing their fingers in their ears to drown out the sound of approaching regulation, building societies have spent the past few years making deals, which mean that the ”restricted advice” they offer varies enormously.

Visit Newcastle BS in search of advice, for example, and you will see a Newcastle employee who will recommend products from a limited selection of providers chosen by Openwork, an advice firm.

Go to Coventry BS and you will see an Aviva employee, who will only talk about Aviva products. Skipton BS financial planners will look at products offered by more than 70 companies, Nationwide advisers will only discuss L&G products.

Nottingham BS will look at products from all providers, through its deal with advice firm Towergate Financial. Towergate also has advisers sitting in Saffron, Melton Mowbray, Nottingham and Loughborough branches.

L&G has sole distribution deals with, among others, Yorkshire, Leeds and Cambridge Building Societies. Which means that if you walk into any of these and ask for advice about where to invest your money, you will only be told about L&G products by an L&G employee, part of whose income will depend on making a sale.

This is all above board, says the financial regulator. Commission was only banned when it was being paid from a product provider to an outside adviser. If firms want to pay commission to their own staff then that’s up to them.

If that’s the case, then I suggest we bin the term “restricted” and go back to a definition that better explains the relationship between advisers and product providers, who in these cases are also their employers.

Was there ever anything wrong with “tied”?

elaine.moore@ft.com

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