Can we trust advisers not to recommend products that pay them high commissions?

HOW DO we know we can trust an independent financial adviser? This was discussed last Saturday on Radio 4's Money Box programme, in which I took part.

The programme followed the fortunes of a listener who had tried to obtain financial advice on her own behalf. Despite speaking to nine advisers, most of them independent (one claimed to be, although he worked for an insurance company), the client was none the wiser.

Indeed, she felt she had been let down badly by the main agency, called IFA Promotion, which exists to promote independent advice. IFA Promotion, which fields 80,000 calls a year from consumers, offers them the names and phone numbers of three advisers in their area. But, as Radio 4's "guinea pig" discovered, those named may not be experts in a particular financial subject area.

There is a separate list of specialist advisers, sponsored by Money Management magazine. Those on the list are also meant to be fee-charging advisers. However, the Radio 4 listener still found herself being steered towards commission as the preferred method of paying for the advice she was receiving.

Therein lies the nub of the problem. Most advisers are remunerated by means of a commission from the company whose product they sell. How can we trust them not to be influenced by the size of commission they receive from one firm, as compared to another?

While many advisers are honourable people, whose prime motivation is to do the best for their clients, others are not. There are a significant minority who think nothing, for example, of recommending high-commission products - such as regular premium pensions to contract workers - that will seriously disadvantage them by loading the charges in the first few years' contributions.

During the radio discussion, the point was made that if we did away entirely with commissions, then many individuals would simply not be able to afford the pounds 80-pounds 120 hourly rates charged by most fee-based advisers.

I have used both commission and fee-based remuneration to reward my adviser, depending on the advantage to me. For example, if one has a very simple end-of-tax-year pension payment to make, that might take only an hour to transact, the choice should be based on the scale of any contribution. As a rough guide, a lump sum premium of more than pounds 2,500 means fees might be more appropriate than commission.

Fees are more transparent though, although one partial solution might be to limit the maximum commission a company is allowed to pay the adviser who sells one of its products - there would be no danger of advisers recommending the highest-paying one.

But the central issue is whether we believe they are competent in the first place. As many advisers admit, the present system means they can get on with selling us what they want after obtaining a basic qualification which is barely tougher than an O-Level. Moreover, there is a plethora of additional qualifications which mean any potential client is left completely baffled when they see the framed certificates on an adviser's wall.

The solution would be to have only one awarding body and to toughen up training and basic exams to at least first year university level.

However, it still boils down to that almost indefinable word - trust. A relationship with an adviser should last until you or s/he retires. If you feel uncomfortable with someone or with the quality of their advice, move on before you do each other harm.