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Informed Choice financial planner Andrew Neligan on why he turned down some £21,000 commission after delivering retirement advice to one client.
I have recently completed some retirement advice work for a client. Nothing exceptional in that, it is something I do regularly.
However, what may surprise some people is that I could have earned £21,000 from the advice but chose not to. And, I will do so again.
£21,000 is what I could have earned as a commission payment from a product provider for recommending a particular product.
This is not an exceptional level of commission; it is standard with all providers and products they offer. My issue with this means of remuneration for advice is:
£21,000 is the salary many teachers and nurses receive in a year let alone in the short period of time it would take to advise and implement this type of investment advice.
How can this be seen to provide any value?
The particular client approached me for advice after seeing two other advisers. Both offered similar but slightly different advice and he wanted an independent third opinion to help him decide.
Knowing that we charged fees the client was confident that any advice we gave was centred around him and not any financial reward.
As a result of our client focused Financial Planning process not only were we able to advise the client on what type of product was most appropriate for his circumstances we were also able to demonstrate that he did not need to expose himself to investment risk with as much capital as he thought.
In fact, he could achieve his retirement goals by investing only 40% of what he expected and leave the balance as savings.
I am recounting this story not be to be self-righteous but to demonstrate how in the financial services industry there are too many occurrences of ‘advice' based on a sale of a product as opposed to a client's needs.
Fortunately the FSA is banning commission from 2013 but there is still opportunity for the salesman to earn a quick buck from clients who are not familiar with the Financial Services world (why would they be if they were not in the industry themselves?).
Don't be fooled by the ‘adviser' who tells you commission is free either. It isn't, you pay through higher product charges; product providers are not that charitable.
We all want to make enough money to fulfil our personal goals and ambitions and some people's desire to make money burns brighter than others. This is not, in itself, a bad thing; entrepreneurial flair and endeavour are important to a growing economy. However, I do take exception to money that is made unjustly at expense of others.
Incidentally, the adviser who was to take £21,000 was actually going to receive £42,000 until the client challenged him on that and he immediately agreed to halve the commission.
Andrew Neligan is a Chartered and Certified Financial Planner at Informed Choice
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Andrew the 'good guy'
What is interesting here is what you don't report.Firstly you do not disclose the fees charged or the actual time spent in delivering your recommendations.Without this it has to be assumed from the stance you are taking that the cost to the the client was a fraction of £21000. Fair dealing is one thing but failing to be profitable in your charging structure is something else. The key to the future post RDR is sustainable pracices that will see the IFA sector stabilise and ultimately grow.These practices need to be embedded now as 1st January 2013 will be too late to start.
Posted by: Duncan Jones
Oh come on...
I find your patronising attitude offensive,had the commission on offer been £2,000 would you be posturing,i doubt it. Good practice means agree remueration before hand then do the work and keep your self righteous i'm a good guy bull to yourself. If the "client" was stupid enough to have even considered paying £21k then that is an accident waiting to happen. Bad practise will be with us forever, articles like this do nothing to build confidence in the industry, either for those who work in it or those who wish to use. Remember you were just doing your job and no doubt charged a fair rate for the work done!
Posted by: F
I turned down £93m...
I can't see how you turned down £21,000! So the client had taken two opinions and not implemented anything - the problem with the product sales culture is that there is only 'death or glory' as the client will either pay £0 or the higher amount. The fact this client had wasted two other advisers' time already (though they are the fools for allowing him/her to do this) would indicate that you offered the only sensible option! Was there any chance to really 'earn' £21k from them? Interestingly I turned down the opportunity to buy a winning £93m Euromillions ticket last Friday (is it relevant that I'd minimal hope of guessing the numbers!)
Posted by: Alistair Cunningham
Customer Agreed Remuneration
I and many advisers I suspect have done the same many a time as the writer. It is dissapointing taht there are still those who will happily look to receive payments massivley disproportionate to the work done. RDR and adviser remuneration (or CAR) will not solve this. I am not sure whether articles like this actually help or not as highlighting others potentially excessive charges (as there are often two sides to the story)may not really help. What is really dissapointing is that the most critical post on here has been from "F" who doesn't even have teh decency to post under their own name when criticising others. I have disahreed with Martin Bamford at IC on a few occassions, but at least I have done this openly and whilst I know it upset him, it was not meant to, it was aimed at us all achieving a better understanding. "F" - You'' probably now accuse me of being holier than though too, but then anon postings have little worth and most of my clients would ignore them, but may take note of those willing to debate openly.
Posted by: Phil Castle
Your halo
Having experienced some of MB's comments in the past, I wonderered if 'self righteousness' was a necessary requirement to work at IC ? What a waste of article space
Posted by: Ian C
it's F again
never intended to reply as "annon" i'd pressed the wrong drop down option, happy to put my name to a comment.
Posted by: Fraser Brydon
Patronising?
Fraser Brydon's comments sum the polar opposites. "If the "client" was stupid enough to have even considered paying £21k then that is an accident waiting to happen." It is obvious that, mainly in the past, advisers didn't disclose commission earned. So would the client be stupid in that case then? To make such a statement that a person must be stupid to pay £21k and then call the author patronising and the like just goes to confirm something we really do know. This industry is full of those with a lack of qualifications and decent education. It is mainly they who will attack those who seek to better themselves and offer a more transparent service. Their egos cover their insecurities. Is it any surprise that highly qualified people like Bamford is nothing short of a credit to the profession? Which is why I say, long may RDR come and rid the current dross.
Posted by: Harry
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greed
I totally agree greed has killed this industry for years, i see it constantly. We recently took £5,000 commission on a £500,000 case instead of £15,000, which is standard practice for us, but thats why we dont lose clients. The moral is dont be greedy it will usually bite you back one day.
Posted by: Mark Young