Advisers have hit back at consumer champion Which? after it accused them of failing clients invested in with-profits funds by taking ongoing commission without providing additional advice.
In a stinging attack on advisers, Which? personal finance expert Dominic Lindley called for the FSA to crack down on a "money for nothing" culture surrounding with-profits policies.
He also blamed insurance companies for failing to make customers aware of the commission paid to advisers and for a lack of transparency regarding their own charges.
With-profits funds have been hitting headlines recently as economic turmoil dents returns, leading to major reductions in bonuses and fund values. Insurance companies have defended their decisions as being in the best interests of policyholders, despite fierce criticism.
However, the spotlight has now been shifted to the adviser community as Lindley says advisers who take ongoing commission for with-profits investments should keep their clients under continuous review and recommend changes where necessary.
"Unfortunately I have seen cases where advisers are taking the ongoing commission, but claim they have no liability to keep their customers' investments under review," he explains.
"If an adviser wants an ongoing commission, they should provide ongoing service and make this clear to the customer. Many adviser firms are moving to this type of business model, but some are still taking advantage of the commissions offered by insurance companies."
His comments have angered advisers who say the majority are treating customers fairly regarding with-profits trail commission.
Jason Walker, senior manager at AWD Chase de Vere, says ongoing commissions should be linked to service proposition.
"We have a clear link between what our advisers take in commission and our service agreement with clients," he says.
"Those invested in with-profits funds are reviewed at least once a year and can opt for more regular reviews at an additional price."
He adds the current economic conditions have caused many insurers to place market value reductions (MVRs) on their funds, meaning it is not in the best interests of most clients to take action at present.
Ian Lowes, managing director of Lowes Financial Management, believes Lindley is misinterpreting the role of trail commission.
"Traditionally, with-profits providers would pay a 7% initial commission, or give the option to receive 4% initial and 0.5% trail, so the additional commission belongs to the adviser because he chose to defer it."
Lindley also claims the with-profits sector is in long-term decline because insurance companies have failed to meet up to the promises they made.
"With-profits funds are far too opaque. People can't understand the product and the smoothing they were promised isn't really being delivered."
Walker says with-profits funds could benefit from greater transparency of costs and charges, but believes they have done their job.
"The investment climate has been unprecedented over the past ten years and could not have been predicted. While equities have fallen by 20%, with-profits funds have generally fallen by 10% so the smoothing works."
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