IFA image tarnished by small minority - and by the high street banks

Henry Kissinger's assertion that "90 per cent of the politicians give the other 10 per cent a bad reputation" is difficult to argue with, particularly as David Cameron and his Bullingdon club mates threaten to send the economy back into recession.

The rogue minority are also capable of tarnishing the majority with an undeserved reputation, however, as many financial services workers (and even journalists) might hasten to add.

This applies to independent financial advisers (IFAs) as much as any area of the industry. While a commission-hungry hardcore continues to abuse the trust of clients by misselling products that are good only for filling their own pockets, the vast majority of IFAs are professional, knowledgeable and dedicated to helping people making the best of their finances.

The problem is that when they are bad, they are really bad. While misselling and bad advice is arguably less commonplace now than it was a decade ago, the damage is often irreparable.

I hear almost weekly from good IFAs of the hours they have spent unravelling the finances of clients who have previously been sold into all manner of expensive, useless and unsuitable products by their previous adviser. In a recent (but typical) example a 70-year-old woman's IFA put her entire 400,000 of capital into a single investment bond, earning more than 20,000 in commission in the process. Another IFA in Edinburgh is on the verge of being struck off by the FSA for selling an unregulated Bulgarian Land Fund to every client. The chances of any investment fund being genuinely suitable for every client are pretty slim, let alone an obscure, unregulated and high-risk investment.

More alarmingly, it's the same two company names that crop up every time. There's now almost no point in me asking who it is, yet for legal reasons they can't be named here, with the Financial Services Authority (FSA) having been made aware of the shockingly bad advice they are dishing out. But while it waits for evidence of systematic misselling or for sufficient complaints to be made, innocent people continue getting ripped off.

There are two things to bear in mind here. The first is that the misselling by IFAs is nothing compared to that by most high street banks, which continue to get away with flogging unsuitable investment plans to pensioners while raking in hidden fees of 10 per cent and more. IFAs account for a tiny proportion of the complaints received by the Financial Ombudsman Service each year, and more than six in ten cases are found in favour of the IFA, a ratio considerably higher than most banks.

Secondly, quality independent advice will be more valuable than ever before in the coming years and rising qualification standards will help ensure the investment is more than paid for over the long-term.

A new advice regime coming into force in 2013 will target misselling and product churning by banning product providers from paying commission to the IFAs that sell their products. There will also be new qualification standards that advisers wanting to remain truly independent will have to achieve. One unfortunate consequence is that as advice becomes more expensive it will also become increasingly exclusive. More people will turn to the banks, who will advise only on a limited range of products and invariably fail to consider individual needs before flogging products. The result will inevitably be even more misselling.

In the meantime, keep faith with IFAs but ask the right questions and do your homework.