Comment: Advisory model wrecked by up-front commissions
Time to learn from the AIG debacle
Although I have every sympathy with investors who lose money, the issues raised by a substantial loss of money by such instruments as AIG's enhanced money market fund run far deeper.
In particular, it is worth questioning the relationship between clients and advisers which led to the belief that the fund was a "low-risk alternative to an instant access deposit account"
Bear in mind the only alternative to a low-risk instant access deposit account is a low-risk instant access deposit account - even if the notion of bank deposits as being 'low-risk' has taken a knock of late.
The crucial point is that anyone who commits all or the largest part of their portfolio to a single investment needs to take personal responsibility for their actions and the way they implement advice from advisers
Wealthy individuals are just normal people who happen to have more money than most. They are lured and flattered by the big investment banks in the somewhat pitiful and naïve belief that they will receive fabulous personal service and immaculate advice, along with other yet more wealthy individuals up to and including royalty.
Likewise, the investment banks are no different to their equivalent on the High Street: they are target-driven sales organisations and will flog their customers whatever is flavour of the month, benefiting from front-end commissions along the way.
The uncomfortable truth is that as long as up-front commissions continue to paid to advisers, the investors who fail to challenge them will continue to be shoe-horned into unsuitable products, and their best interests will be sacrificed on the altar of the 'quick buck'.
If clients and advisers want to know whether the financial advice being received is genuinely impartial, investors and their advisers they need to ask the simple question: "Who pays?"
If the answer is anything other than: "the client", the advice is almost certainly to be in the adviser's interests, not theirs.
*** Neil Shillito is co-founder of SG Wealth Management, a UK-based adviser which should not be confused with Société Générale's private banking operation. Its revenue is solely derived from fees paid by clients. Third-party commissions, from whatever source, are fully accounted for, and rebated against the relevant client's fee account.
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