Need advise, saw Barclays financial planner

dunstonh

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

Typically the differences are very small. However economies of scale works in financial services as much as it does in all other retail areas. Why arent all makes of baked beans the same price?

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.

This is a continuation of a long term plan to push sales people out and have a higher standard. It started a long time ago and this is just the next logical stage. However it should also be noted that the FSA has faced problems with the EU stating that a number of its proposals and ideas breach EU rules.

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

Why not?

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.

If the consumer wants a flat rate fee they can have one. If they dont, then they dont have to.

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?

We already have a system that does that. Its up to the consumer whether they use it or not. It is not up to the adviser unless the adviser is a salesforce tied or multi tied rep.

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".

IFAs are not discretionary investment managers and are not allowed to make those sorts of decisions.

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

IFAs are qualified as the exams cover those sorts of things. However, the remit doesnt allow it unless additional control functions are applied for which are not within the standard IFA remit. However, lets say you did, there would still be a cost of advice and the net effect would be the same.

To be honest, it sounds as if you are mixing up what a discretionary investment manager does and what an IFA does. Or more likely what you want them to do.

asdv

Most people, like I once did, think IFAs are the right people to go to advise the best thing to do with a bit of spare money. As this thread clearly agrees they aren't, then who is the person to do the job ?

Rollinghome

dunstonh wrote: »

Typically the differences are very small.

As I'm sure you must know that isn't really true is it?. The trail commission paid to advisers by different UT companies varies between 0.00% and 1.00% per annum

For example, if an adviser placed a client's money entirely in L&G funds the top rate of trail commission paid is just 0.5%. Many of their funds pay just 0.3% and I understand their gilt index funds charge only 0.2% pa managment and so pay advisers nothing at all which isn't too attractive to the advisers. Many other companies also pay a maximum of 0.5% pa.

On the other hand Martin Currie pays advisers 0.75% pa trail commission on most of their funds as do Hendersons and many others. Jupiter is another that pays a higher rate of trail commission. Money placed with Aberdeen would earn the adviser 0.875% per annum.

£100K in Martin Currie funds would earn an adviser an extra £750 every single year but in L&G just £500 or less. Money in the lowest cost funds could earn him no trail commission at all.

It's presumably because some advisers are not frank about the differences that the FSA wants changes away from the commission system which many investors find hard to understand. A "hybrid" system would be the most confusing of all but then "confusion marketing" can be very profitable.

Reaper

asdv wrote: »

Most people, like I once did, think IFAs are the right people to go to advise the best thing to do with a bit of spare money. As this thread clearly agrees they aren't, then who is the person to do the job ?

I don't think this thread clearly agrees anything of the sort. I think the closest thing to agreement is that tied advisers (eg from Barclays Bank) are not a good idea.

Those who are willing to put in the effort to research savings and investments can make their own decisions (as I do), but not everybody has the time or inclination.

Those that don't should go to an IFA. As you say what is the alternative? Some bloke down the pub? Pick investments with a pin?

Proper professional advice has to be paid for one way or another. In my opinion an IFA on a fixed fee basis seems the ideal solution for those not wanting to DIY it.

dunstonh

As I'm sure you must know that isn't really true is it?

Please provide evidence.

The trail commission paid to advisers by different UT companies varies between 0.00% and 1.00% per annum

The typical average is 0.5%. In fact that is the figure the vast majority pay. However, some pay 0.1%, 0.35% and a very small number pay 0.75%.

For example, if an adviser placed a client's money entirely in L&G funds the top rate of trail commission paid is just 0.5%. Many of their funds pay just 0.3% and I understand their gilt index funds charge only 0.2% pa managment and so pay advisers nothing at all which isn't too attractive to the advisers. Many other companies also pay a maximum of 0.5% pa.

So what?

On the other hand Martin Currie pays advisers 0.75% pa trail commission on most of their funds as do Hendersons and many others.

Hendersons pay no trail if direct. However, they do through fund supermarkets. MC pay the typical 0.5% on the fund supermarkets. Jupiter dont pay trail on a number of the funds depending on platform but 0.5% when they do. Aberdeen also pay 0.5% on the vast majority of their funds.

I don't know where you are getting your information from but its not very accurate.

Rollinghome

dunstonh wrote: »

Please provide evidence.

You've provided the evidence:

dunstonh wrote: »

However, some pay 0.1%, 0.35% and a very small number pay 0.75%.

You said earlier the differences were "very small". Now you say some pay 0.1% while others pay over seven times more than that.

Call me old fashioned but 750% more doesn't seem a "very small" difference in commission to me.

dunstonh wrote: »

So what?

Why would any company offer advisers a higher rate of trail commission if they didn't think it was effective?

dunstonh

You've provided the evidence:

Which was different to what you posted.

Call me old fashioned but 750% more doesn't seem a "very small" difference in commission to me.

Thats because you are focusing on commission and not charges and disregarding suitability and justification.

If you are really that paranoid about it then either go fee basis or agree the level of remuneration so its fixed.

Rollinghome

I think what is needed are advisers who are totally open about the differing commission rates they receive. Not claim that the difference in the commission levels they can obtain are "very small" one minute then admit that the difference can be seven-fold.

Investors need to feel confident that when an adviser encourages them to put money in a stocks and shares ISA rather a cash ISA, or whatever, that it isn't because one course earns them commission but the other doesn't.

Any commission system, or "hybrid" commission system, or a system that earns the adviser a fee which depends on the amount he encourages the client to invest can't ensure lack of bias from the unscrupulous.

I somehow doubt that the Financial Services Authority etc. are paranoid in their view of the whole commission system and want reforms but can understand why some advisers would want that believed.

I think Moneyweek puts the case very well:
"Need some unbiased financial advice? You’ll be lucky to get it in the UK. Despite the best efforts of a small part of the financial advice community to revolutionise the way they offer advice to their clients, the majority of our so called advisers are in fact no more than salesmen...."
www.moneyweek.com/...unbiased?-you'll-be-lucky.aspx

asdv

dunstonh wrote: »

If you are really that paranoid about it then either go fee basis or agree the level of remuneration so its fixed.

You are either misunderstanding the point or avoiding the real question.

Aegis

Rollinghome wrote: »

Any commission system, or "hybrid" commission system, or a system that earns the adviser a fee which depends on the amount he encourages the client to invest can't ensure lack of bias from the unscrupulous.

Why not? If the amount of money that the adviser gets is fixed, why would there be any commission bias? If you're going to pay him equally whether he puts everything into NS&I certificates (no commission) or an investment bond with huge commission, why would he pick one over the other if he doesn't keep anything more than a pre-determined amount that's made up by the customer if the commission is insufficient?