Analogies. They're useful for looking at situations from a different perspective in order to make sense of them. So I want you to consider a scenario where tobacco companies use a cocktail of chemicals to enhance the addictive effects of nicotine in the cigarettes they sold. I guess that's not so hard to believe.
What if those tobacco companies were then told they had to make cigarettes less addictive? What if they were given a specific date by which this must be done? Don't misunderstand me, smoking wouldn't be banned, and smokers would still be able to choose whether to smoke or not, but they wouldn't find themselves addicted.
It would be odd then for tobacco companies to continue selling highly addictive cigarettes in the run up to the ban, whilst at the same time telling smokers how easy it is to kick the habit - wouldn't it? In fact you might feel outraged.
That's how I feel when I hear big Life Insurance Companies telling Financial Advisers how to wean themselves off commission, and at the same time still pushing products that have opaque commission and charging structures. Let's face it, some of the charging structures that exist on single premium life assurance bonds are only there to disguise high levels of commission. The misuse of commission has helped create and perpetuate the myth that financial advice is free.
At the time it must have seemed like a cracking wheeze. Create a charging structure that looked like the insurance company was giving the investor free money! 110% allocation rates, 5% bid offer spread: invest £100,000 and see the bid value rise to £105,000 the minute the money is invested. But if you wanted to cash in, well that's another story - but nobody wants to cash in on day one do they? And if the Annual Management Charge is a mere 1.5% that's OK isn't it. And the Establishment charge - what's that? A tiny 1% per annum and it's only for 5 years. Oh and a teeny weeny policy charge, switch charge, oh and don't forget the underlying fund charges. Confused? Robbed more likely.
Investors must have been confused because they bought these things by the bucket load, and still do. And some advisers have been raking in commissions like there's no tomorrow - which for some is probably true, because they have no intention of taking exams or operating in a world that bans commission.
But I don't want to talk about advisers, I want to focus on the morals of the large financial institutions that allowed this situation to occur in the first place, and who today are operating with dual standards.
Who in their right minds thought it was a good idea to create investment bonds with opaque charging structures? And in a world where investors and advisers were already addicted to commission, then added a heady cocktail of alternative charges and vague percentage points to ramp up the addiction? It must have felt like a stroke of genius!
Now it's come back to bite them. Because all those advisers that never had deep and meaningful conversations with clients about advice, or about how much it costs are floundering. The were duped by the product manufacturers into selling things without realising they were becoming addicted to the easy sale - they never thought it would end. Commission is easy, and can even be made to look like someone else pays. Kerching!
But now, when these insurance companies see their cash cow under threat, they run round offering to help their customers (financial advisers) adapt to change. But not to worry, we'll still retain the opacity of the existing charging structures until the very end. Then, reluctantly they'll turn off the life support machine. There will be some final gasps, shouts of anger and then, for some advisers, it'll be curtains. For others they'll struggle on, gasping for oxygen, and clinging on to whatever hope they've been given by their friendly life company, until they too fall by the wayside.
In my opinion Insurance Companies have acted immorally and operate in a self serving manner - which is completely at odds with their 'mutual' roots. The ending of commission on sales financial products is as much to do with their actions as anyone else's. They should recognise this and feel very ashamed when going into advisers offices offering to teach them how to adapt to the new world order.
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