IFAs singled out for criticism by Treasury-backed inquiry

A Treasury-back inquiry into the savings industry has criticised Independent Financial Advisers (IFAs) for being unduly influenced by potential marketing revenues when giving out financial advice to customers.

The review, published on Monday 30 July, will do much to heighten concerns over the issue of unbiased financial information as available to the general public. After examining all products in the long-term savings sector – excepting bank accounts – the report revealed a potential conflict of interest when it came to investment advice given by IFAs, stating that due to the potential misalignment of advisers’ incentives with the needs of their customers “competition within the industry may not lead to optimal outcomes for consumers”.

With-profits funds also came under close scrutiny, with policyholders often given little information on the mechanisms behind what is termed “the smoothing effect” – which supposedly arises due to the surplus funds insurance companies amass from having limited returns to pay out on each year. However, in reality, there is no guarantee that there will be an adequate surplus to take care of any shortfall, meaning that with-profits policies may not be as safe an investment as has been marketed.

The review will now go forward for consultation throughout the industry. (CL)

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