Need advise, saw Barclays financial planner

dunstonh

However, hearing all the negative responses regarding IFA's

IFAs account for just 2% of complaints at the FOS yet they are the largest distribution channel. So, statistically, the figures do not support the negative view. Even the FOS have said that. Also, over half of people seeing tied agents thought they were seeing an IFA. A significant number of people also dont know the difference between an IFA, FA or mortgage adviser so we tend to get tarnished with other adviser class issues as well.

am now concerned in this regard as he suggested that most of his clients preferred the commission route, therefore what the ultimate implications to any suggested product are likely to be. jpj

In the UK, most people do prefer the commission option. As Aegis says, its down to perception and some people just cannot understand that writing a cheque out for advice is actually cheaper than not writing a cheque out. Indeed, I have known tied agents SPIN the fee option to make it sound like fee option is more expensive and we have seen posts on here that show that some consumers have fallen for it.

Rollinghome

Aegis wrote: »

Why does it matter to you if the insurance company pay your adviser money? It's not like you get a reduction in your premiums by going to the insurer direct, and in fact the IFA often has access to cheaper policies than the norm. If he also offered to share some of the commission with you, what's your complaint?

Surely it does matter when different companies pay advisers different rates of commission? Presumably the companies paying the best rates of commission think it encourages more advisers to recommend their products.

That's why customers are rightly suspicious that an "adviser", whether bank or IFA, might be more interested in what he gets paid than the best deal for the customer.

Even if direct commission to advisers is outlawed under the proposed new FSA rules, will it be any better if the "fee" is still based on the amount invested rather on the work involved? Doesn't it still mean that the more the adviser persuades the investor to invest the more he earns, so almost as bad?

In my opinion, the only way to guarantee unbiassed advice would be to charge fees based solely on the time involved, and not dependent on what product is sold or how much the client is persuaded to invest.

asdv

Absolutely correct. People should be made more aware that the commission is an age old selling trick. Not just in the financial industry.

People will generally prefer the commission option because if they are buying into managed mutual type funds, they have no other sensible option because those fund companies do not allow purchases to ordinary people at a 'no commission' price, so paying an IFA by the hour would result in overall additional costs, without obvious benefit of impartiality.
The only way around this is for the IFA (or discount broker) to agree to return part of the commission, to some negotiated extent.
I don't think IFAs are required to suggest this idea upfront. Not surprising, because it would make an official mockery of the system.
If the industry re-arranged thing to make advisers WANT to charge by the hour instead of commission then advisers might start more often recommending modern new products (that buck the age old status quo organised by the age old mutual funds) like ETFs that have zero initial loading and typically 60 percent lower annual management charges.

Sadly the only likely change is going to be if the public vote with their feet and only use those few modern forward thinking advisers who are responding to the growing demand for really independent advisers (RIFAs ?) who only charge by the hour.

Would anyone choose a healthcare provider that was on commission with the drug companies ?

sons_2

dunstonh wrote: »

I have known tied agents SPIN the fee option to make it sound like fee option is more expensive and we have seen posts on here that show that some consumers have fallen for it.

They are trained to do just that, how to say it so commission sounds cheaper and better.

sons_2

asdv wrote: »

Would anyone choose a healthcare provider that was on commission with the drug companies ?

They do in America.

Reaper

asdv wrote: »

People will generally prefer the commission option because if they are buying into managed mutual type funds, they have no other sensible option because those fund companies do not allow purchases to ordinary people at a 'no commission' price, so paying an IFA by the hour would result in overall additional costs, without obvious benefit of impartiality.

If you choose the fee option the IFA will refund you the commission, so it normally works out cheaper.

I would much prefer fixed fee to commission or pay-per-hour.

dunstonh

Surely it does matter when different companies pay advisers different rates of commission? Presumably the companies paying the best rates of commission think it encourages more advisers to recommend their products.

There has been no widespread evidence of that happening although cases have popped up from time to time.

Even if direct commission to advisers is outlawed under the proposed new FSA rules, will it be any better if the "fee" is still based on the amount invested rather on the work involved? Doesn't it still mean that the more the adviser persuades the investor to invest the more he earns, so almost as bad?

The fee will be agreed in advance. So, it doesnt matter how much you are investing as you will know the fee.

If the industry re-arranged thing to make advisers WANT to charge by the hour instead of commission then advisers might start more often recommending modern new products (that buck the age old status quo organised by the age old mutual funds) like ETFs that have zero initial loading and typically 60 percent lower annual management charges.

These so called modern products usually fall outside the remit of IFAs. Thats the real reason they are not recommended.

Too many people focus on the commission paid and not on the charges they actually pay. Its very easy for some commission products to come in cheaper than nil commission products. Size of commission often has little to do with the actual charges paid. You can see one adviser getting 3% have higher product charges than another getting 6%.

When you buy a washing machine, you look at the price you pay. You dont look at the gross profit the retailer has on it. The same should apply to financial services products.

asdv

dunstonh wrote: »

These so called modern products usually fall outside the remit of IFAs. Thats the real reason they are not recommended.

Why do they fall outside your remit ?

dunstonh

asdv wrote: »

Why do they fall outside your remit ?

IFAs are authorised to recommend packaged investments. Directly quoted investments fall under the remit of stockbrokers. Some IFAs will have a stockbroker in house or a link to one but most don't.

Rollinghome

dunstonh wrote: »

There has been no widespread evidence of that happening although cases have popped up from time to time.

That then begs the questions:

1) Why do some companies pay higher rates of commission than others if it doesn't influence the adviser. Are they just very stupid?

2) Why would the FSA be forcing through changes to get rid of the existing commission system if there wasn't a problem? The big question is whether the reforms will go far enough. Most think not.

The fee will be agreed in advance. So, it doesnt matter how much you are investing as you will know the fee.

But not in advance of the agreed amount to be potentially invested.

If the fee is not flat-rate and based on say an investment of £100K, then the client would lose out if he didn't want to go along with the recommendation and only invested half.

Pensions and investment are important. Why not have a proper professional system with a fee based on the amount of time involved instead of a smoke and mirrors commission system that encourages bias?

It doesn't make sense that if any IFA had told his clients to get out of the markets 12 months ago it would have saved them huge losses but ruined his business due to losing all the trail commission. A system where a good adviser would be penalised for giving good advise surely isn't what we need. It seems to all come back to the problems of "the bonus culture".

These so called modern products usually fall outside the remit of IFAs. Thats the real reason they are not recommended.

Isn't that yet another major problem with bank advisers and IFAs? They just aren't qualified to recommend the most cost-effective investments.

When you buy a washing machine, you look at the price you pay. You dont look at the gross profit the retailer has on it. The same should apply to financial services products.

But then people who sell washing machines are called washing machine salesmen. They don't call themselves "washing machine advisers".