The Equitable Life fiasco reiterates the importance of impartial advice after customers following sales staff's recommendations are still not guaranteed their money back.
More than one million Equitable Life customers lost up to half of their pensions and savings after the bank admitted it claimed its policy holders' investments were worth £3bn more than the total assets and therefore slashed the value of customers' policies.
Sharon Bratley, chartered financial planner at Fairinvestment.co.uk, says customers were convinced by sales staff to put all their eggs in one basket, leading to many policyholders losing everything.
"A large proportion of investors with Equitable Life had all their pensions and investments through that one company, providing little or no diversification, so when Equitable Life failed, so did these people's future in retirement," she says.
The firm boasted that they didn't pay commission to middle men, but had a direct sales force who were remunerated by commission, adds Bratley.
She believes the disaster highlights the importance of independent financial planning irrespective of the type of remuneration.
"By dealing with an independent adviser, you will gain access to the whole of the market, meaning should a particular company fail only that part of your savings will be in jeopardy."
Chief Secretary to the Treasury, Yvette Cooper admitted poor regulation was partly to blame for Equitable Life's failure, acknowledging policyholders were victims of maladministration and should be compensated for their losses.
However, not all policyholders will necessarily receive 100% compensation as the Government's payout scheme will 'focus on those who have been hardest hit' and those awarded compensation could wait for over two and a half years to eventually get their money back.
Bratley has slammed the Government's scheme, saying it 'just isn't good enough' and questions how it will judge those who have been disproportionately affected.
"If the Government have found that policyholders have lost out due to the company's poor management, then compensation should be applied across the board to everyone who has suffered, not just those the Government deem most worthy ," she says.IFAonline
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