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Nick Plumb, IFA at Bright Financial Planning in Sudbury, says the FSA's actions could lead to disaster for advisers and consumers.
So, Hector Sants has revealed his real opinions of the IFA sector. In the words of a certain Mr Butler: he doesn't give a damn.
Contrary to the opinions of the scaremongering and sensationalist popular press, the financial services industry is not populated by thieves, vagabonds and rogues.
In my experience, the IFA sector in particular is generally staffed by very professional and ethical people who are highly qualified and who every day help hundreds of thousands of people to save and plan for their futures.
Financial services must already surely be the most regulated and policed industry in the UK, if not the entire world.
No other industry has to jump through so many regulatory hoops to provide a basic service to a client. Yet after years of constant changes and alterations to the way investment products are sold and regulated, the FSA seems to feel the consumer should be even better protected and the mechanisms by which life, pension and investment products are distributed and sold, should be changed yet again.
When I first entered this industry as an adviser with Lloyds Bank, we were regulated by the Life Assurance and Unit Trust Regulatory Organisation (LAUTRO), who quickly gave way to Financial Intermediaries, Managers and Brokers Regulatory Association (FIMBRA).
These organisations were swallowed up into the Personal Investment Authority (PIA), which in turn became the Securities and Investments Board (SIB), which eventually morphed into the present regulators: the FSA.
All of these bodies have made changes and introduced increasingly complex tiers of regulatory controls, but in my opinion, to-date only one change has really been significantly beneficial to the consumer.
The introduction of ‘polarisation' within financial services in 2001 was a major step forward for the consumer. It meant advisers would be clearly identified to the consumer as being either tied or independent. The IFA could shop around in the entire marketplace for the best products for his clients.
This made the choice of where to buy financial products clear and easy for the consumer. If their adviser was not independent, they would not be getting independent advice. This system worked well for a number of years, until the big banks realised their tied sales forces were losing sales to IFAs. They therefore started a campaigning and lobbying process to have polarisation scrapped, and surprise surprise, in 2005, it was.
The new regime of depolarisation introduced a third tier of financial advice. Sandwiched between independent and tied advisers, came multi-tied advisers. This was an adviser who could offer products from a limited range of providers, but who still did not offer truly independent advice to the consumer.
Confused? So was the consumer. The multi-tied tier meant a bank could tie up with a handful of investment companies (on very lucrative contracts for both bank and investment company) to form their own little panel of approved product providers and their advisers could call themselves multi-tied.
Since depolarisation was introduced I have never met a single consumer who could explain to me the meaning of multi-tied advice. Without exception, those people I have met with (particularly after they had been to see their bank or building society) were convinced they had been offered independent financial advice by someone who was in fact a multi-tied adviser.
It is clear the FSA totally screwed up when they removed polarisation. The consumer did not then and still does not understand the depolarised model, and the lines between what is independent and tied advice have been blurred to the advantage of banks and building societies, whose customers mistakenly believe they are providing them with independent advice.
However, instead of admitting they screwed up and going back to the polarised model that was so much clearer and easier for the consumer to understand, what have the FSA done?
Believe it or not, their whole thrust for the last few years leading up to the RDR seems to be: the problem is with IFAs being paid commission and not being suitably qualified. The FSA seems to feel that an IFA cannot truly give independent advice if he or she is remunerated by commission.
It also seem to feel the exams we have all taken and passed in order to qualify as financial advisers and all the Continuous Professional Development (CPD) we have undertaken since passing those exams now counts for very little and we should all now start sitting another round of exams covering much the same subject and content as the old ones.
To make the new exams appear more relevant the syllabus for each paper includes subject matter financial advisers would not give advice on in a million years. For example, the JO2 exam on the subject of trusts includes a whole chapter on bankruptcy, something financial advisers do not give advice on and would refer to an insolvency practitioner.
An exam on the subject of Investments RO2 tests the adviser on their knowledge of how to calculate the running yield or redemption yield on a gilt fund, something that few advisers would ever need to do for a client and would refer to an investment manager to do for them, to ensure it was done correctly.
These are clearly exams for exams' sake as they teach nothing of value that will be used in the real world advice process by an IFA.
Assuming an adviser takes and passes these new exams, that process will not enhance the knowledge or professionalism of that adviser or improve the quality of advice that they give to clients. It will just mean they know a bit more about some stuff that is actually mostly irrelevant to what they do, has a few more meaningless exam credits, and perhaps some different letters after their name. Ask yourself: does any client know the difference between Dip and Cert? Do they know who the PFS or the CII are? Do they even care?
If an adviser is a commission-hungry crook who rips off his clients by selling products with the highest levels of commission, or churns investment bonds every five years, having a couple of extra exams under his belt will not change his ethics or attitude to conducting business. He will still be a commission-hungry crook. He will just appear on the surface to be a slightly better qualified commission-hungry crook.
If the FSA thinks commission influences IFAs to sell the highest paying products, why does the FSA just not cap commission? Currently, some investment products pay 3% commission and others pay up to 7% commission. If there was a 3% commission cap applied, no adviser could be accused of ‘product bias' to earn higher rates of commission.
I can honestly say I have never allowed commission to steer my advice to a client, or to influence my recommendations to invest in a particular product. Indeed, in most cases, our firm surrenders commission on higher paid contracts so we are paid a flat rate and any excess is re-invested back into the plan to benefit the client.
I operate on a mix of fees and commission. Some clients prefer to pay an agreed fee or hourly rate for their advice, but in my experience, the majority of clients prefer for me to be remunerated by commission paid by the product provider. This is particularly true with investment business conducted for many elderly or low income clients.
For example: a low income client inherits £95,000 from their late mother's estate. It is the most money they have ever had and they know that they need to invest it, perhaps to produce additional income. Their adviser offers them a choice of paying him a fee of £800 to conduct that business for them, or commission which would pay him £1,000 phased over five years. I can guarantee the client will opt for the commission route as they simply would not be able to afford the fee based route.
However, if the FSA gets its way, commission for IFAs will eventually be abolished and IFAs will only be able to call themselves independent if they are remunerated by fees alone. Now how can that be good for this particular consumer? That means this client would probably never take independent advice and would be the lawful prey of the banks and building societies.
When the client went to the bank for advice, they would see a big difference in the key features documents (designed by the FSA to protect and inform the consumer) issued by the bank and the IFA.
The key features document I would issue to the above client as an IFA would disclose commission paid to our firm by stating "We will pay £1,000 in commission to your financial adviser for arranging this investment contract". However, the same key features document for the same investment by the bank adviser would say "XYZ Bank plc expect to incur sales costs of £1,000 for arranging this investment contract".
Sales costs? How has the FSA ever allowed that one to slip through? It's commission, pure and simple.
However the banks will argue they will be incurring sales costs because that's the cost of the commission they will be paying to their adviser, even though he won't see much of that commission at all and the majority of it will be swallowed up by the bank to "validate' the adviser's ‘salary" and company car. So the bank's key features document paints a very different picture to their customer than that which the IFA has to issue to his client.
The industry needs change, but not change for change's sake. There cannot continue to be such a disparity between the rules imposed on small IFAs and the rules adapted to suit the purposes of the big banks. The FSA needs to regulate all advisers on a level playing field, regardless of who pays the most in fees to the FSA. The industry should also be re-polarised so advice is either independent or not. The consumer understands that distinction but is completely confused by multi-tied advisers.
The current RDR proposals should be completely scrapped. Taking more exams is not the answer to a better industry. Many older but highly professional and competent IFAs will simply leave the industry when faced with taking yet more pointless exams.
As has been evidenced by Mr Sants speaking to the TSC, the FSA actually expects to lose 10% of all advisers as a result of the RDR. Surely if the RDR is something designed to improve the quality of advice given to the consumer, it should be attracting new blood into the industry from college and university, not forcing 10% of advisers to leave the industry.
This would not be acceptable in any other industry. Can you imagine the response if the motor industry was regulated to the point where car salesmen had to sit exams on how the internal combustion engine actually worked or how to measure the emissions from a catalytic converter? What do you think would happen if 10% of car salesmen left the industry, and the motor traders association then announced to all the dealers that had lost business and had to make staff redundant; "Don't worry, because we expected that to happen and after all, this reduction in numbers will improve the quality of advice given to people who want to buy a car!"
The majority of IFAs have had enough of this ridiculous regime of over-regulation. We see our own accountants and solicitors not having to take more exams after becoming professionally qualified and we wonder why we have to take more exams every few years just to continue to do what we have always done for our clients. The surgeon who operates on us when we are sick does not have to re-qualify by taking new medical exams, yet we trust him to open us up with a scalpel.
The loss of any IFAs as a result of the RDR will weaken and eventually destroy the independent advice sector. That will mean fewer outlets for the distribution of financial products and services, and fewer consumers being encouraged to save and invest and insure themselves, which will eventually put even more strain on the state pension and benefits system. RDR will have completely failed.
Do we really want to see that happen before someone realises the FSA have actually gone completely down the wrong track?
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Reply by author
Many thanks Colin. I just thought it was about time someone stood up from the ranks to say what a lot of IFAs think and feel. And before anyone accuses me of being one of those died in the wool IFAs who whines about exams because he can't pass them: I have already taken and passed the new RO2 Investments exam at first sitting and I am sitting JO2 in April. As someone who specialises in investments I can honestly say that I gained nothing of value from the RO2 exam or studying for it, that will be of use to me in dealing with clients on a day to day basis. But hey, at least I now know how to calculate the redemption yield on a gilt fund for that 1 in a million occasion when some nerd asks me how to do that. Nick
Posted by: Nick Plumb
Fee's vs Commission
A well written article although I do query your point about a client prefering to pay via commission vs fees. The new regime will introduce fees only but they can still be paid via the product provider. The key difference will be that instead of a client having to sift to the end of an illustration to see what their adviser will be paid it is instead agreed in advance between client and adviser. You can still be paid £1000 spread over 5 years if that's what you agree and it can still be paid from the investment. It will actually be beneficial for the client to pay via the product provider in many cases to avoid any confusion over whether they should pay VAT. Some very valid points raised but unfortunately they'll fall on deaf ears.
Posted by: Austin
Product provider should pay
A client pays for advice. Fine. But I have a business to run, staff to pay, office expenses. I can't expect my clients to pay for all that as well. No, I expect that to come from the Product Provider. I expect them to pay me for recommending them. Call it commission, whatever. But why should they get that work done for nothing? RDR hasn't a clue about business.
Posted by: Ken Durkin
IFA fights back.
A well thought out and concise article. If this was circulated to all MP,s it must help those that are taking the FSA to task. It does not need reams and reams of reports and certainly shows Mr. Sants and his cronies that we are not as dumb and daft as he would like everybordy to believe
Posted by: terry
IFA Fights back
Wow I wish I'd written that it echoes everything I've ever said and thought about the industry and regulators. I fear it will fall on deaf ears though, no one is listening, common sense has been replaced by legal minute detail and page after page of rules requiring more and more regulators to monitor it. I too am sitting the exams and will continue to trade as an IFA but wonder what changes will be announced in the next few years ro squeeze us out when tye realise we haven't all gone this time?
Posted by: Chris Pinkney
Austin is wrong I'm afraid I think
A well written article and lest hope the TSC is reading this as the vocal numbers against the wholesale immediate imposition of RDR on Jan 1st 2013 is at least as equal to those pro continuing the steam roller. I am not anti it, just the timing. On the commission issue you can only spread an advice cost over a maximum of 2 years post RDR and it is only for rergular premium business, you will not be able to do it for simngle premium at all(as that is factoring), if you take anything ongoing for a non regular contract, it has to be for the provision of ongoing services, not for the initial advice. Go Back and look at the RDR paper and there is a temaplate example of how to explain spreading and advice charge over the 2 years and that it can only be for a regular premium payment. The FSA will NOT allow any form of factoringfor lump sum business, which is what he has described. Talk about the FSA confusing everything!
Posted by: Nameless
Well done Nick Plumb
Very good article Nick ....a lot to read. At the final analysis we do not need all this regulation or 2,000 plus staff at FSA The solution should be more severe penalties & so the need for fewer staff 'If you mislead your client and give bad advice ..........you get sent to jail and confiscation of assets to pay compensation' This includes Directors of Barclays who allow branch advsiers to sell inappropriate equity based products to 85 year olds, and former CEOs of building societies who authorise the marketing of similar inappropriate products to similar age groups. The penalities for the culprits appear to be too lenient
Posted by: Roger
Well done
I don't have your communication skills and wish I did. Thankyou for setting things out so well. The crazies in Canary Wharf have definitely taken over entirely these days and have no idea what we deal with on a daily basis. Never mind the redemption yield on a fixed interest security. Try asking a client something simple and essential like how much protection they have? They never know! And they never know who provides the cover, when it ends, whether it's in trust and if so who benefits and so on. Let's get real - clients don't in almost all circumstances want the kind of detail that our regulators seem to feel is needed. What it the new exam regime really means is that they can specify something, check that it has occured and justify their existence. The key difference is that in 5, 10 or 20 years time we will still be here, needed by our clients and respected by them. They will have moved on in their careers and the carnage they've left behind will be sorted out by another group of similar jobsworths who think that doing the wrong thing is better than doing nothing at all. You see the difference is between someone who has a job and someone who has a lifestyle choice. The advisers I meet are professional, care deeply about their clients, remain involved through good times and bad and want to do their best for their clients. I just don't come across the type of rubbish advice that Banks hand out daily when I come across a client who has had independent advice. Of course we aren't perfect but I do not believe that qualifications are a cure for bad advice. They may help avoid certain problems but the bad advice I've come across is all too often to do with target driven sales.
Posted by: Neil Franklin
ifa fights back
Dear Nick, That was a very well written article. I couldn't have done better myself. What you did so well was to allow the silliness of the FSA proposals to rise to the surface, and to present the IFA and client case in a simple and understandable manner. Austin's comment that your pearly wisdom will most likely fall on deaf ears is probably right. But I think you should keep writng such articles, and to make a point of forwarding them to the FSA. I cannot think why the FSA think it is a sensible idea that, upon meeting a client for the first time, I should start to haggle with him, not unlike a Marrakesh rug seller. Fergus
Posted by: Fergus Macpherson
Adviser charging.
Nameless. I did read the paper although it was a lot of pages so there was some skim reading involved and didn't see anything about charging being over no more than two years. Factoring, as I have been lead to believe, is when a product provider advances you money from their own funds, rather than them coming from the fund of a client. The fee from a single premium investment could still be spread over time without it being considered factoring as long as it was taken from the fund and not advanced. I'll have to have another read of the RDR paper and check on the restrictions on adviser charging. Feel free to point me in the right direction to save me a lot of time though.
Posted by: Austin
Flaws
“knowledge of how to calculate the running yield or redemption yield on a gilt fund, something that few advisers would ever need to do for a client” Absolutely not so. You evidently have never helped your clients buy Gilts directly off the National Savings Register. Of course you are right about commission hungry crooks, but that is going to be a thing of the past. The new system will still allow the remuneration to be taken from the product, but at least there is now no possibility of anyone hiding what they take. I really don’t follow your example at all – so invest £94,200 and pay the £800 fee – no? And it’s not only IFAs who will have to be fee only – so will Restricted advisers – if anyone is daft enough to chose that route. The banks are unlikely to go restricted or independent – as they won’t be able to get Wayne & Tracy to level four. Barclays have already recognised this – so you piece about banks is somewhat redundant. However as honest as you may be there is always the possibility of lack of knowledge or experience leading to customer detriment. The two are intertwined and while the regulator concentrates on the former they seem to ignore the latter. Commission caps are a pipe dream; the OFT won’t stand for it. I don’t really understand why not when the commission on OEICS and UTs is a standard 3%. I don’t know about you, but I do expect my car salesman to have technical knowledge. I want him to have cylinder capacity, power output, torque characteristics, servicing intervals, valve composition and so forth at his fingertips. What is unarguable is the FSA’s lack of grasp of their own statistics. I too watched the TSC broadcast and we had 20%, 10% and 8% bandied about and as George Mudie pointed out they don’t know the age and service profile, let alone accurate numbers of the IFA community. It is entirely likely that the FSA may be on the wrong track, but not necessarily on all issues. Your comments on polarisation are pertinent, but I have come to the conclusion that complaining about regulation is fruitless. Let us hope that Parliament - who remember spawned this monster in the first place - realises that the creature of their creation needs some serious adjustments. I have just received an Institute of Directors report on red tape in the UK. It costs us almost 8% of GDP!!! So - not that is any consolation – we are not alone!
Posted by: Harry Katz
Austin
I'll go find the right bit for you in a minute. One of the issues over spreading it over time is also that if you charge a fee for initial advice post 2013 on a lump sum and then you say you will let the client spead it over anytime, then as the insurer will not be paying it to you in one lump (factoring), you are allowing the client to pat over time, which would require you to have a consumer credit licence, which whilst a lot of moretgage brokers will have one, not many Investment/ RDR, what a butchers muddle.....
Posted by: Nameless
A breath of sanity...........
But if only 'they' would read it, and understand what theya re doing to us !!
Posted by: David Williams
Austen
Look at PS 10/06 Page 27 point 4.9, ongoing charges and page 29 point 4.12. The template for your new diclosure document is in annex A page 34 of 69. Some firms, like mine have been using this in our Client Agreements for over a year now.
Posted by: Nameless
IFA fights back
An excellent presentation of common sense Nick. What a pity that our regulator is unable to think in such a joined up Our problem is that the agenda is one that can not be battled against and whatnis happening now is that FSA is defending it's position rather than debating the issues. As had been said before unsubstantiated assertions become accepted truths simply by their continued use and there is no one powerful enough or inclined enough to really take them to task. Thank the lord I only have a few years left, most of whichbwill be spent with my head in books
Posted by: Allan Young
Excellent
Thanks Nick. I'm about to compose a letter to Cameron following his comments to "let him know if we want grow our businesses" and I will include your artcle as it adresses every point of madness in the RDR proposals.Sants is behaving like a child in refusing to listen or acknowledge the thousands of careers and jobs at stake with these proposals and his 'no regrets policy of unintended consequences'.Two hundred years of building an industry from Industrial Branch to a thriving industry which provided employment and pensions for thousands has been decimated since 1997 when Brown created 'the monster' (and also helped himself to £6billion a year from pension funds). To those of you who have decided to 'mark' Nick's article (Harry the Gilt Warrior)we need to find one voice or we will all suffer regardless of how clever you may think you are. This is no longer a threat it is real and with rising costs,vat etc. there won't be a queue to pay fees. Stakeholder decimated regular pension savings and the RDR will finish the job.We need to take the type of action the Public Sector are about to take and create public awareness with an anti-RDR day.
Posted by: Peter Taylor
About Time
Great to see a well argued diatribe. Lets not forget Equitable Life did not pay commission to IFA,s but had the same "costs" that non IFA advisers will now be levying. Anyone out there still thinks Equitable Life advisers got it right for their clients?
Posted by: Bill
BRILLIANT
Nick, send it to Sants. It's brilliant...in the round.
Posted by: Keith Jayne
Sants won't read this stuff
I will eat my hat if Hector takes the time to read this (in the round) brilliant article by Nick Plumb, as well as the majority of the comments. And let's not forget, it's the clients who will suffer just as much as us. As I have asked before (admittedly only on blogs), where does Hector get his personal advice from, ie about his personal investments and IHT issues and perhaps pension issues - or is he too snooty to seek it? I bet you that he and his cronies would be astonished if they really realised the trouble we (have to) go to to get it right for clients. What a smug regulator he is. Makes me (and it seems a lot of others) want to give up.
Posted by: CONFFA
IFA Fights Back
The best and fairest article ever !
Posted by: Norman
Reply by author
Wow! And I thought Colin was going to be the only respondent to my rant! Thank you all so much for your kind comments about my article. My goodness Harry - you are that Nerd I have been waiting for who would ask me the Gilt Redemption Yield question. Seriously - you also make some good points very well and I think you generally agree with me. If only I thought it would actually make a difference. Anyway - I may be mad with all the changes going on in our industry, but I now have to get back to real life and the pressing matter of starting my own practice here in sunny Suffolk after many years of being successful for other people. So if you share my views and are looking for a new home...... Thanks again to everyone for their kind feedback. I am glad so many of you enjoyed the article. Nick
Posted by: Nick Plumb
Blind date
I think Austin and nameless should go on a date together, I can picture the conversation now, Austin you were wrong about that, Nameless no I was'nt, yes you were, sorry what was your name again, anyway i think the article summed it up for everyone, but as someone said they will not be moved, after all they are only trying to justify there existence at your expense, I was going to sign myself as nameless but he has already used it,
Posted by: Geoff
Do you feel better now?
Well, I bet you feel better for getting that off your chest. There are a couple of minor areas that I could argue with you about, such as charging fees on investments. But overall you have articulately voiced all our opinions. The fact that Barclays announced their departure from Financial Advice shows that the main effect of RDR will be an unadvised majority who will either have to fend for themselves or be missold by the remaining banks again. Because they will - without doubt. For me, we are moving further upmarket - but we are going to have to leave clients behind who cannot now pay the fees to cover our services. Which I am really upset about. But I have a business to run and a family to keep. Charity is not an option unfortunately. As financial advisers we have been very poor in garnering support. Our professional organisations have been next to useless and the banks have bullied their way to what suits them.
Posted by: Simon Booth
Embarrassing!
From a personal perspective the industry term "independent" is not whether you can buy a product from the whole of the market, but who controls how you are paid. It doesn't matter whether it's a cheque from the client or an amount deducted from a product, as long as it's in your terms of business which is read and agreed before you do any work for the client. Those not wishing to see the end of commission suggest it is for the good of the client when reality shows it's the loss of advisor revenue that matters most. There are no end of examples of IFAs that have looked at different ways to work and be paid, and the majority report back that it has been a revelation to their business and the their client relationships. Take the Ken Durkin post from 15.42. If you don't get the client to buy a product who does pay for all your outgoings? I thought we provided financial advice that may or may not lead to a sale? Seems like a commission bias to me. A profitable business has to cover all its outgoings and yes it is the client that pays. With regards the initial post from Nick Plumb. If someone had inheritered £95k are you trying to suggest that they would prefer to lose £1,000 through a commission model than pay £800 from money they had never had? You can moan all you like, you even get the RDR stopped tomorrow if you shout loud enough, but beleive you me the industry has already moved on. Whilst i don't question your passion with regards exams, The sooner commission is banned the better.
Posted by: NigeL Barker-Smith
IFA;s vagabonds
This from a man who is lobbying Mervyn King not to be too hard on the banks, knows where his next job is then.
Posted by: anthony Bell
Superb
A Great article Nick, please forward it to all concerned it will definately be passed on the my MP. I,m all for non RDR day, when do we march!!
Posted by: Trevor
Wayne & Tracey, Harry??
Great article Nick. a lot of truth spoken their. I must however take exception to Harry Katz' comment about Wayne & Tracey!! I am a Wayne, I have been in the industry for 28 years, as Adviser, manager and Compliance officer and am still a practicing IFA, oh and yes Harry I am qualified to Diploma level and have the odd Advanced level qualification too!!! Personally I think Harry is a silly name! :-)
Posted by: Wayne Clark
IFA Fights Back
An excellent article Nick despite a few small flaws. Please forward an email copy to as many M Ps and members of the Lords as you can. I have not had time to read every additional comment on your article but in scan reading I did not come across anyone mentioning the new "Simplified Advice Model" that the ABI and BBA have conived together to convince the FSA is necessary. The Waynes and Tracys in the banks and insurance companies that Harry Katz refers to, although they may never attain Level 4, will still be able to continue flogging overpriced and unsuitable products to bank and insurance company customers earning big bucks for themselves and their banks.
Posted by: John Smyth
Great Article!
This article encapsulates virtually all of the frustrations felt by most IFA's in the U.K. The Ivory Tower thinking that has led us here has been responsible for most of the major errors of judgement made by the regualors in the last 15/20 years. The number of IFA's will inevitably decrease. Not all of the people who leave will be poor advisers. The F.S.A seems not to be troubled about this? They also state that the new regime of simple advice will deal with most of the financial requirements for the mass of the poulation. This completely forgets that ordinary people sometines have extrordinary financial issues to deal with. What happens when the new style simple advice practitioner reaches a issue he cannot advise on. he will have to refer. The client will ask 'how much will that cost'? In order for an IFA to stay in business post R.D.R. the answer will be probably 'about £200.00 an hour' The client in many cases will say 'forget it!' The result will be everyone loses. Well thought out this plan isn't it?
Posted by: Christopher Wheeler
Rant over?
Ok, decent rant but some points made are fundamentally flawed and highlights why other professions see this as a bit of a joke. Ok, you might not need to calculate the running yield for every client, but HNW ones where you select NSI products will need this working out. Also agree to an extent on the syllabus but I've gained extra clients by presenting ideas I learned through the advanced papers which most advisers know nothing about, or would not have discussed with their clients. So to say "Assuming an adviser takes and passes these new exams, that process will not enhance the knowledge or professionalism of that adviser or improve the quality of advice that they give to clients." is just ridiculous and embarrassing. You simply get back what you put in. If you teat the exams as a way of expanding your knowledge then you are bound to spot advice opportunities and be able to generate more business. If you can't that's your loss. Finally Nick, you say that no matter what, a commission hungry flogger will remain so . . . actually they won't be there to do business in the first place! You think his clients will agree to his fees? Oh he could not mention them, but how long will he last. RDR will bring good. Make the most of it.
Posted by: Harry
My 2 cents
"For example: a low income client inherits £95,000 from their late mother's estate. It is the most money they have ever had and they know that they need to invest it, perhaps to produce additional income. Their adviser offers them a choice of paying him a fee of £800 to conduct that business for them, or commission which would pay him £1,000 phased over five years. I can guarantee the client will opt for the commission route as they simply would not be able to afford the fee based route." How can a client who has just inherited £95,000 not afford the £800 fee? I don't get it. Anyway, the fact that you couldn't factor it as described notwithstanding, the RDR will get rid of the IFAs that would take a 7% commission upfront from the provider, not those that would charge £1,000 - however that might be. These are the people that were originally tied and multi-tied and realised the vast amounts of commission they could get access to if they were 'indepedent'. A lot aren't truly indepedent as they still put together sales scripts for their favourite products and their business mix across providers is heavily baised to two or three products. I worked with an adviser who sold over £6m of pension switches in the second half of 2009. He took 5% from every one and 98% was with the same provider. He was a salesman, not an independent financial adviser. As for exams giving you nothing of any use, I like this quote: "Be wiser than other people, if you can, but do not tell them so."
Posted by: Ben
Never heard of a fee hungry professional?
Firstly I must agree with almost everyone else, a brilliant article. Secondly, to those who think that only people receiving commission can rip off their clients it is time you gave your brains a bit more of an airing. If you have never been over-charged by a professional who adds extra time on to their bill, or who charges for work actually performed by a junior, boy, are you in the minority! Those paragons of virtue, solicitors, are reputedly notorious for it (no doubt unfairly, m'lud). I sadly have experience of more than a few accountants whose clocks appear to tick an awful lot faster than my quartz watch and as the old joke goes, they must be at least 250 years old when they die if you add up all their billable hours. So as the more perceptive among us have realised, lets not give the FSA what they want and destroy our industry by in-fighting. Provided the client clearly knows what they are being charged let them decide whether it is called fees or commission. If you get extra business by being super technical, good on you, but don't deride the majority whose experience means they have the common sense to give their less technically demanding clients precisely the service they want and need. Continuing the medical analogy theme, you don't go to a brain surgeon the first time you get a headache, you go to a GP and a good GP should recognise when a specialist is needed – they don't go slagging each other off for not being “the other”. Perhaps we should add a compulsory “humility” paper to level 4 and above because it clearly isn't being learned now.
Posted by: Michael Both
Well said Michael
Michael Both, It is a pity you are not a politician or a regulator. The world would be a better place if it were filled with more like you.
Posted by: lol
Response from Author
I must confess to being a little disappointed by some of the comments from the 'I have a superior technical knowledge to you because I sit lots of exams' brigade and the snipes about fees vs commissions. Frankly, who gives a toss whether there were a couple of technical points in my article that Norman the Nerd disagrees with? I wrote with passion on a subject that I care about. It was not a technical essay. I have merely stated my own experiences of working with my own client base of mostly working and middle class families and the retired community, few of whom are comfortable of a fee-based model. And sorry, but one does not find a great deal of call for buying Gilts off the National Savings Register (or indeed from the Debt Management Office) when working with the average family with a 3 bedroom house, a Ford Mondeo and 2.4 children. Whilst I have a scattering of high earners and high net worth clients, in the main I work with what I would describe as pretty average people who work for a living and who have relatively simple financial planning needs. I am proud of that and of the business I have built with those clients. I find that those IFAs who 'lecture' those of us that do not yet work wholly on a fee-charging basis more than a little condescending. The mantra of "How holy I am because I charge fees and how unethical you are because you take commission payments" is wearing a little thin now. Last year I saw two terrible examples of mis-selling and blatant churning, both of which were carried out by firms who made great claims of 'professionalism' and 'quality of advice' in the promotion of their fee-based practices. The very fact that both families approached me for help tells me all I need to know about how professional those two firms were and just what their clients thought of them. I worked for free to untangle the awful mess that both families had been left in, and even if I do say so myself, I did a damned good job. Both couples are now clients of mine. I earn a reasonable fund-based commission on their investments (you can call it an annual fee if you prefer but it's actually commission) and both couples have also both placed new business with me. Between them, they have also referred three other people. I think my free time was well spent and a good investment, but I know there are many fee-based IFAs out there who would not have worked for free. But then those fee-charging IFAs would not have won back the trust of those (fee-averse) clients and built a long-term relationship with them would they? And potentially worse - the clients may even have written all IFAs and the industry off and tried to manage their affairs without the benefit of ANY professional advice ongoing. My point is - we all have our place in the financial services industry (regardless of whether we charge fees or whether we take commission) and it's time we pulled together and acted together. We all agree on the basics: Certain aspects of the industry need to be cleaned up and better standards of overall advice and client care need to be introduced. However, we are over-regulated and RDR is not the complete answer (certainly not in it's current form). Those that want to sit more exams and get extra letters after their names should be encouraged to do so, and those who just want to crack on and do a good job by their clients whilst earning a decent living should be allowed to do that too. (Hopefully, regardless of whether you want to be the former or not, we should ALL be aspiring to achieve the latter). Problem is, this industry will NEVER pull together because it is just like every other aspect of British life - i.e. There are too many self-riteous snobs who enjoy a good snipe at someone else's expense and the vast majority of people will moan and groan a lot to each other but will actually do nothing to change anything and will gradually accept what is imposed upon them. If you need any evidence of that, just take a look at how many people have posted comments in response to my article (and other articles on this site) using a first name only or a pseudonym. Easy to knock RDR and the FSA when no-one knows your name and address isn't it? And that's exactly why the FSA and RDR will prevail unchanged. It's sad but it's true. I have had my 'rant' as some have called it, and yes, it was very satisfying thank you. I have not got myself into trouble nor have the FSA descended upon me with chains and shackles (yet). I have made my point and had the 15 minutes that Mr Warhol told us we would all have. So instead of telling me that I should send my article to Mr Sants or to my MP, (I already have done), why don't you guys all step out of line and have a go yourself now? Then you can send YOUR letters to Mr Sants or to your MP, and maybe just maybe, together and collectively we might make a difference.
Posted by: Nick Plumb
Spelling error by author
Sorry - that should have been 'self righteous' not 'riteous'. OOOPS! Thank goodness I don't rely on writing for a living!
Posted by: Nick Plumb
Happy Harry
That means you Harry. Ever heard of "team player"??
Posted by: Sam
It's not a game.
Sam Don't know to which Harry you refer, but I would have thought that the last thing a true IFA could be described as is a team player. If he wanted to be that he/she would have joined a Network or become tied (is that restricted in modern parlance?) Even if you run and own a larger concern you are unlikely to be a team player. I well remember that I always listened to others but in the end a business is not run as a democracy.
Posted by: Harry Katz
False premise of RDR
If RDR was necessry and the right way forward, level of PI premiums for level 3 advisers would be higher than for level 4 and level 6 advisers. the same would be refelcted in commission v fees. My qualifications are level 3, part way to level 4 and yet my PI is low due to lack of ANY PI claims. I rarelt loose existing clienrs and all new business comes by referral. I neve have ANY competition. Why is RDR therefore necessary?
Posted by: Nameless
Harry who
Harry. It is this continued indignant and antiquated up my own @@@@ view that exactly demonstrates why you little understand a team player. Of course my business is my concern but the future for everyone be they tied, multi tied or Ifa will to done degree necessitate everyone coming together. Not simply standing on your own diamond encrusted pedestal like some horny peacock. Please try to add to the debate not simply score against what you perceive to be the lower classes amongst us. I have a very successful practice working largely in rdr land but many do not and we need to help not destroy these people.
Posted by: Sam
Response to Sam
"These people" i.e. not RDR ready or no intention of changing, are destroying themselves, and have only themselves to blame. Generically they are happy to blame everyone else rather than look at themselves. Although I don't agree with much of Nick Plumb's initial blog, at least he has done something about it. Life is full of people that moan and do nothing about it. I have all the time in the world to help our profession, with smarter ways to work (even though I always lots to learn) but their has to be a willingness to listen. Whilst acknowledging the FSA are not fit for purpose, the ethos of RDR produces better outcomes for clients AND advisors. Thats improvements in advisors personal and commercial life. I've said it many times before, RDR or not, the industry has changed whether we like it or not. If you want to be profitable or even survive you have got to evolve, PERIOD.
Posted by: Nigel Barker-Smith
How do you know?
"the ethos of RDR produces better outcomes for clients AND advisors. Thats improvements in advisors personal and commercial life" How so nigel? what do you know about other advisers personal lives?
Posted by: rfrduptohere
Response to "How do you know?"
Not too sure if you're being "arsey" or generally interested? In an effort to prove my williness to share and assume you are interested, my comments came off the back of the last 4 years in which I have spent an inordinate amount of time, money and effort learning new and adapting old skills. I have studied "life planning" and become a better listener, I have taken exams to increase my techinical knowledge, I have learnt the best use of lifetime cash flow forecasts to incorporate into my business, and also a mountain of business ownership skills to help me towards a steady and profitable business. Whether this is marketing, designing a client proposition or whatever, I have been fortunate to meet many people in the industry on the same journey. It is very rare to come across anyone that has not benefited in some part. I appreciate that (apart from this blog)it is not about me i.e. the IFA, but about the client. Most in the industry don't understand this critical difference. It's not what you do or have or how qualified, it's what does the client want and what can they get, but under your terms. Anyway, the summary of all this, is that my life has changed dramatically during this transition. It goes without saying that if you have a healthy and enjoyable business (or job) that this transcends into your personal life. You might want to try it one day!
Posted by: Nigel Barker-Smith
Well done Nigel
Nigel, as you say, your honesty and genuine caring qualities have been accelerated by RDR. I'm sure way back in the day most of your existing ideas would not have been actioned upon as sales managers and targets would have probably got the better of you. But it is in your nature to think about your clients first, so you were going to get there one day anyway. Whilst your honesty is great, it will be wasted on anyone who dares to have a go at what you have achieved and what more you are going to achieve. The profession needs more like you - you will do really well.
Posted by: Harry
Live & Let Live
I am not being "arsey" your word not mine. I think you are making the classic mistake of thinking that everyone wants to be like you and that if only everyone did as you do the world would be a better place. If what you are doing makes you and your clients happy, great. Others of us are happy doing what we do even although we would never give ourselves the title "Life Planners" Personally, I would feel I had abdicated all responsibility if I allowed someone to "plan my life"
Posted by: rdrd uptohere
Further response
It seems you are making the classic mistake or assumption, where did I insinuate that everyone should be like me? You asked me "how do I know?" and I responded with FACTS about me and my journey to answer your question. I did not say or for that matter believe, what I have done is right for everyone. You choose your own business models and toughen up on your own weaknesses. I wish everyone well who strives to improve in whatever shape or manner. I used the word "life planner" purely as the industry i.e. readers would understand the term, but very much appreciate clients have no idea what this means and even if they do, they usually get the wrong (negative)impression. Life planning is very subjective, but as I see it it helps clients define current priorities, rather than mapping out a whole life. Which of course constantly changes. Although this aspect of our industry is of personal interest to me, commercially I feel it helps me stand out from the crowd. I would never plan someones life, the skill is to help them identify what's important to them. I assume from your answer(dangerous I know) that you are very clear about your priorities, some clients are not due to the hectic pace society tends to run at. Whether the client is very clear or not about their current priorities "life planning" helps support them to acheive their goals. I agree that no one wants to be told what to do, but equally appreciates any help in acheiving what matters most to them?
Posted by: Nigel Barker-Smith
Trusting IFAs
The fact is there are many caring, profesional IFAs out there – but the industry as a whole (banks anyone??) seems to be viewed with a lack of trust. Hence the attitude “might as well do it myself”. I don’t see this changing until the pain of the recent bank collapses / Icelandic investments / buy to let losses / stock market losses / mortgage endowment failures, etc. fades. Long list isn’t it? Time will tell but good IFAs are already working to regain confidence.
Posted by: TaxTeddy
IFA fights back: We aren't thieves, vagabonds and rogues Read more: http://www.ifaonline.co.uk/ifaonline/comment/2033465/ifa-fights-arent-thieves-vagabonds-rogues#ixzz1IHcpwldy IFA Online - News, blogs and analysis for IFAs
Very passionate but very ill informed and one-sided. Don't compare financial advisors with accountants and lawyers. The minimum qualifications for those professions are far higher that your Cert PFS and even Dip PFS. You can compare IFA with carsales people if you want, most are! Except that the implication buying a pension is greater and longer lasting in its impact than buying a Mondeo Your example ...'a low income client inherits £95,000 from their late mother's estate. .... Their adviser offers them a choice of paying him a fee of £800 to conduct that business for them, or commission which would pay him £1,000 phased over five years. I can guarantee the client will opt for the commission route as they simply would not be able to afford the fee based route' How many of you IFA's will receive a commission of £1,000 for a £100k investmnets? You get more like £3,000 of £5,000 depending on which provider pays you the highest commission. off course unlike a fee structure, you can't and don't need to justify the commision because 'the providers pays' Grumbly all you like, RDR is here to stay!
Posted by: Abraham
reality check
I enjoyed this article and agree with many of the points made. The sad thing is that the heavily qualified, holier than thou advisers out there will be wiped out by the 'Keydata tsunami' type levy bills just the same as the double glazing sales type advisers. The new RDR world still contains many highly toxic commercial issues that cannot be ignored, and the only firms that might survive are wealthy ones. Problem is, those firms tend to be advisers to the HNW type client bank so the end result, one way or t'other is that only wealthy advisers handling minted clients will survive long term. That really is a huge pity for the rest of the population because they need quality financial planning advice. The bit that baffles me is that people refer to the FSA etc as 'morons' and worse - they are not. Most of the senior staff at the FSA, and quite possibly the more junior ones too are bright, capable people. That means that they must all be aware of the huge advice detriment that clients of normal means are about to suffer. And if they are aware, why is that policy being pursued? Let's face it, they could have required Level 6 as the RDR qualification and banned commission instantly when the first RDR announcements were made. That would have taken care of most advisers straight off - there isn't any need to create a situation where millions of ordinary people will lose access to advice just to wipe out IFAs. It's all very strange and rather similar to what Gaddafi is doing to his folk. No chance of NATO airstrikes on Canary Wharf I doubt though. I am amazed by recent articles encouraging IFAs to become business people...what on earth have they been to date? Nobody in their right mind would ever, ever consider starting an IFA business these days if they understood any of the detail of the real commercial risks in doing so. Most of us are kind of stuck with it and have become conditioned to the trench warfare atmosphere of the industry, but I wouldn't go near it if I had my time again. Luckily we are a well funded HNW centric practice that moved to a RDR compliant model in 2006..BUT, it has been a long haul, required deep pockets from the owners, and still doesn't stack up commercially when issues like long stops and FSCS bills of possibly vast dimensions enter the mix. I honestly believe the whole advice sector is completely doomed, with the possible, and I really mean possible, exception of very well paid advisers to the wealthy. The massive industry churnathon that is currently ongoing in many firms coupled with the horrendous numbers of business failures a la Keydata that are popping onto the radar screens means that very difficult times lie ahead. It will, mark my words, end in tears.
Posted by: huw
Brilliant!!!!!
You have just put together the best article I have read in ages. Very well structured and written and so very very true. I am currently studying JO2 and I am now an expert on Bankruptcy even though Bankrupts dont tend to want to see me!
Posted by: K L Jackson
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IFA Fights Back
What a well structured article and response to the FSA,RDR and all the changes that are now happening in and around IFA's.
Posted by: Colin Fell