INVESTMENTS

Many people, it is clear, are still too innocent or too ignorant to be able to resist the blandishments of a well-trained and highly motivated insurance salesman

Full marks to the Consumers Association, which this week came out with some interesting and headline-grabbing research showing how often financial advisers give poor investment advice to those who come looking to them for help in their financial affairs. A survey in the monthly magazine Which? suggests that up to a third of all advisers give bad and unsuitable advice.

The most common offence it identified is recommending a financial product that is quite inappropriate in investment terms, but which has the great merit (from the adviser's point of view) of earning a commission.

One of their researchers who was sent out to pose as a redundant man wondering what to do with his pounds 15,000 pay-off was on several occasions urged to put his money into investment bonds or Peps when a risk-free building society or bank account would have better suited his needs.

A second researcher, claiming to be a young man looking to save some money to pay for his wedding two to three years away, was offered a variety of unsuitable alternatives, including a personal pension, Tessa savings accounts and even on one occasion, two emerging market investment trusts.

All of them would have earned commission for the adviser that the researcher went to see.

Accountants and solicitors were just as culpable of putting their own commercial interests ahead of those of their client, the survey found, as independent financial advisers.

In fact, concludes Which?, despite their often poor reputation, the independent financial advisers came out best of all the types of advisers they looked at.

Naturally, one hopes that the advisers who come badly out of this exercise are suitably chastised by the exposure.

Bad publicity can be a powerful deterrent. It is actually quite easy to take issue with the conclusions of the survey. The findings are based on a very limited sample, and the Consumers Association is nothing if not the ultimate do-gooding body, with all the strengths and weaknesses which that implies.

The notion that it can dictate what financial advice anyone should be given is in the finest tradition of nannying - well-intentioned but bossy. The implict assumption in the two cases it presented is that most people are, or should be, risk-averse at all times.

Not for nothing, one suspects, was the second guinea-pig it chose to test a 26-year-old trainee accountant, though one hopes he would have known better.

Such aversion to risk is certainly not the kind of attitude which is going to make the British economy great again. In the movies, at least, any young man with real fire in his belly would not be saving for his wedding, but living life to the full and taking risks while he still could. He would, almost certainly, not be a trainee accountant in the first place.

One's mid-twenties, if only one knew it at the time, are actually a very good time to be investing in the stock market. You only need to find one or two successful companies, such as a Glaxo, Sainsburys or Rentokil, to set yourself up for a prosperous later life, while the risks of doing something that permanently damages your wealth at that stage are still small.

But there is no point in being over-censorious about this kind of survey. Such exercises are well-intentioned and have the potential to do an awful lot of good.

The consumer badly lacks a champion to stand up for him against the vested interests in the financial services industry. The banks, building societies and insurance companies, like all former cartels, need a powerful consumer lobby to keep them on their toes.

Nor can anyone doubt that the problem of commission-driven sales of financial products is a real one. The sorry saga of the mis-sold personal pensions is graphic evidence of that.

Many people, it is clear, are still too innocent or too ignorant to be able to resist the blandishments of a well-trained and highly motivated insurance salesman.

Unfortunately, those who say that the answer lies in more regulation are only partially right.

The only way to avoid inadequate financial advice for certain is for individuals to arm themselves with the necessary information to protect themselves against committing financial folly.

As I mentioned a few weeks ago, the solution really goes all the way back to the education system. In the last years of the twentieth century, it is still depressing that thousands leave their schools or universities without any clear sense of how to manage their own financial affairs.

Even supposedly well-educated people can be curiously myopic when it comes to money matters. While many rely on friends for advice, the trouble is that there is no guarantee that this produces any better results than listening to some unknown adviser. Relying on your bank manager for wholly disinterested financial advice is also not without risk.

All the banks these days are in the business of trying to sell extra financial services to their customers, which creates its own potential conflicts of interest.

In any case, as Professor Jim Gower, who wrote the reports which the Government used to frame the current Financial Services Act, points out, the other problem with financial advice in this country is not that it is often bad.

It is that, as a nation, we are so reluctant to seek it. When we do, we prefer to try and get it on the cheap rather than pay a reasonable fee for it. One reason why independent financial advisers and others end up being so dependent on commission is that they cannot always make a decent living without it.

As is so many things, the only sure way to get good financial advice is to pay for it. Over a lifetime, the cost will more than be recouped by the savings and returns that it generates.

But best of all is to put the time and effort into finding the answers yourself. The Consumers Association itself publishes several useful books on mortgages, pensions and the like.

Riveting reads they are not, but a couple of hours ploughing through them is certainly a worthwhile investment - even for accountants.