Clare Francis, who writes for the Times of London, says that readers claim financial advisors in England are "greedy, lazy, and incompetent."

Having lived in Europe, I can pretty much attest to the fact that financial advice all over is rather low, certainly not up to the standards in the United States. For the most part, in Italy, France, and England, many people are sold insurance policies or investments that either they don't really understand or are simply not right for them. What's rocking this boat? Apparently, the idea of commissions.

Francis relates the story of a retired vicar from Canterbury who went to a national firm of financial advisors to inquire where he should invest a lump sum from a pension he received from his teaching days. The advisor came up with the idea of dividing the money among eight insurance bonds, six of which were for-profit funds. The advisor never asked the vicar what he presently had in his portfolio. Had he done so, he would have found that the vicar already had insurance bonds.

It is clear that the first rule of advice is to look at a client’s existing holdings and tax status before making any investment recommendations. That is the only way you can create a diversified portfolio. This is kind of basic financial planning 101.

The vicar's experience points to the big flaw in the financial advice system: those damn commissions. Keep in mind that while the U.S. is quickly gravitating to a fee-based system, much of Europe is still relying on advisors earning their money via commissions from sale of products. Abuse, then, can run rampant.

The Consumers’ Association in London notes there are concerns that some products become popular because of the level of commission that the advisors receive, not simply because they are the most suitable investment.

Francis tells another story about an elderly man who contacted an advisor regarding the purchase of a certain type of annuity, which would pay a higher return to aged individuals in poor health.  He was told that he could either invest his entire pension fund in an annuity that would yield $700 a month or he could take a tax-free lump sum of $18,500 and then receive $525 a month. The man selected the latter route because he wanted that big lump sum payment. The advisor wanted him to pick the first. Had the man done so, then the advisor would have reaped the bigger harvest and would have received fees of some $6,165 provided the gentleman used the entire amount to buy the annuity. In the second option, the commission was only $4,621.

In fact, The Financial Ombudsman Service says that about 70 percent of complaints it received last year were centered on poor advice.

I'm not at all sure we're talking "bad advice" here. In the American vernacular, "rip-off" might be more appropriate.

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