Personal finance: Independent? They're not

"POLARISATION" has nothing to do with arctic exploration, though one mention of the word in finance circles can be enough to generate a frosty reaction. In the jargon, polarisation refers to the two kinds of financial adviser: salesmen who work for one bank or insurer, and independent advisers who survey the whole market for the best deals. They are supposed to be poles apart.

But there is a "halfway house" between tied and independent advisers. A third sort of financial adviser would be called a multi-tie. This means he or she would have close alliances with five or six top companies and offer a choice of their products.

The Office of Fair Trading (OFT) is currently looking into polarisation, and whether customers might be better served by allowing multi-tied advisers to operate. On the surface it's not much of a debate. An independent opinion is undoubtedly better than one from a salesperson who is working for only a few firms, so what's the point in allowing this middle ground to take hold?

The point is, it exists already. The OFT investigators are sniffing around the fact that many apparently independent financial advisers are in effect multi-tied. They don't advertise it to customers. You probably wouldn't appreciate knowing that the IFA who takes all your details and then goes away and does important "research" is really only choosing between a handful of companies on a master list called a "panel".

Finding this out is a bit of a let down - like the end of The Wizard of Oz when the real wizard is revealed as an ordinary man hiding behind a majestic facade.

You may also be interested to hear that firms on a "panel" will often offer sweeteners to the IFAs who select them. They pay more commission, as well as fringe benefits such as subsidised mailshots to the IFA's customer base.

The IFAs argue that competition between firms to get on to "panels" generates better- value products for customers. But there are plenty of other ways to encourage competition and even the IFAs' supportive trade newspapers are casting doubt on this dodgy practice.

An editorial comment in last week's Money Marketing newspaper says: "Can everyone say, in utter sincerity, that their panel does more good for their client than their own pocket?"

Allowing multi-ties to become legit would open the whole process to public scrutiny. At the moment, there's no need for an adviser to tell you he will get more commission selling pension X than pension Y.

And to return to Oz for a moment: Dorothy got back to Kansas by herself. She had never needed the wizard's help.

i.berwick@independent.co.uk