Financial journalist, Paul Lewis, presented what I'm sure was a fascinating talk to a group of skeptics in June 2011. I have long harboured similar reservations to Paul about some financial advisers but I have never been able to articulate my concerns as well as Paul has done.
I strongly recommend that anyone interested in debunking tax and financial advice reads the transcript of Paul's talk. It's on his website here. In it Paul, who presents MoneyBox on Radio 4, argues that:
- Financial Advisers do not address most areas of financial advice with which the public have problems;
- Financial Advisers become seduced by the product providers and promote products that are not in the investors' best interest;
- It is commission – not solutions to financial problems – which has driven the growth in the financial services industry;
- Most people should clear their debts before starting to invest for the future;
- Many advisers and the public confuse savings with investments. If you save money it remains yours. If you BUY an investment you no longer have the money you have an investment - which can go up or down...
- Assessing what the industry calls customers’ ‘attitude to risk’ is not done well. Because most people haven’t got a clue.
- The impact of inflation is not specific to savings accounts. It simply means that any investment return needs to outstrip inflation (and charges) to have been worthwhile. And this always carries a risk that it may not happen.
Paul concludes:
- Do financial advisers really give the financial advice we need? Not often.
- Do we all need to see a financial adviser? Absolutely not.
- Will the Retail Distribution Review make things better? Yes. But there is still a long way to go.
From a tax perspective it was also interesting to note Paul's analysis of the top ten common financial topics he gets asked about. This included income tax, national insurance and inheritance tax (IHT). Of these, financial advisers will typically only advise in detail on the latter. I wonder how often the typical financial adviser involves a TAX adviser rather than simply looking at ways to fund the inheritance tax when it falls due? Maybe it's my background but I'd think that the starting point for people with concerns about IHT should be an inheritance TAX SPECIALIST rather than a financial adviser.
Finally I should state that I know a number of financial advisers who do not fit Paul's stereotype description. Equally I know a number of accountants and tax advisers who promote tax schemes with much the same mindset as that of which Paul complains. By which I mean they are seduced by promises of healthy commission and assurances given by the original promoters of the schemes that the scheme works and that the hoped for benefits outweigh the risks. But that's a whole separate subject - that I've addressed many times before on this blog.
What's your view?
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A very knowledgeable and in depth views, A must read.
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