Advice on investment advice

cheerfulcat

Of course, IFAs can only advise on and sell you products; if you want anything more than that you need a broker.

Execution only means you get no consumer protection if the product and funds you chose were not most suitable for you. The advice channel gives you that protection.

OTOH you could be an adult who does not need nannying.

dunstonh

I'm not necessarily against your main conclusions, but could you please clarify? Surely if you pay for advice what you get, all you get, is advice, not consumer protection?

Nope, you get consumer protection. If the product/funds recommended are unsuitable, then the advisor faces the liaiblity. Recommend the right funds but put them in the wrong tax wrapper and the person complains and you have to pay the compensation. Put them in the wrong risk funds and you pay the compensation.

Why do you think all these old tied companies have stopped their salesforces which have been in place for 150 years? Its not the stockmarket crash. There have been far worse than the recent one. Its that they can no longer afford the liability and cost that goes with giving advice. A single advisor pays nearly £3000 a year for FSA/FOS levies and around another £3000 for liability cover, which is mandatory unless you get an exemption (i.e. you are loaded and can cover the liabilities.

How do you think people are getting paid for all these endowments?

10-15 years ago, the consumers association were recommending endowments as best buys. They didnt see them as bad. Yet look at them now. Go back to the late 80s and the Govt was recommending pension transfers into their new personal pension scheme. Into the mid 90s and a realisation that it wasnt a good move after all and compensations were paid.

If you did it yourself you dont get a penny. So, if you bought the cheapest endowment because Which? had it as best buy and you saved £4pm for doing so, then its your own fault.

Look at the AXA cashbuilder thread. That is an execution only product. No compensation payable there unless the advertising of the product is wrong. If they had been sold by a financial advisor though, there would be compensation as those people should have gone with PEPs/ISAs.

Another thing that happens in a rising stockmarket is that inexperienced investors start to invest above their risk profile because they get carried away with the big returns. You see it mentioned on these forums often with a few of the regulars telling people to do medium or higher risk investments without knowing what someones risk profile is. No-one ever complains when it goes up. Its when it goes down that the problems start. If endowments were still paying 2-3 times more than needed, would there be any complaints?

If you go execution only, you lose the right to use the complaints proceedure and ombudsman.

EdInvestor

Why do you think all these old tied companies have stopped their salesforces which have been in place for 150 years? Its not the stockmarket crash. There have been far worse than the recent one.

Not since 1974 there haven't

If you go execution only, you lose the right to use the complaints procedure and ombudsman.

It's true that unless you allow a salesman to sell you a product, then you can't claim misselling compo if he does it incorrectly and you make a loss.

The other side of the coin is that if you DYOR well, have due regard to risk, and cut the charges back to the minimum, you're much less likely to make a loss in the first place.

dunstonh

The other side of the coin is that if you DYOR well, have due regard to risk, and.....snip

Why is it that you have a total disregard for peoples attitude to investment risk then when you respond to threads here making recommendations on what they should do?

The problem with high returns on risk based investments is that you get inexperienced investors thinking "I want some of that" and they go into it thinking they know it because the daily mail told them, or TMF thinks its a good idea or Edinvestor said so on the MSE forums. They then get 3-4 years of good returns and they are happy and then they get a negative year. This is when you find out if your own research or that of your advisor is any good. Did you realise you can lose 50% of your money on that portfolio? No? Who gave you the advice? an advisor, then complain. If Edinvestor on MSE, then you are stuffed.

Whether you choose to get advice or not is a personal decision. If you get advice, yes it will cost you. It may not cost you as much as you think but it could be money well spent. However, the way that some here rule out advice as a complete waste of money is foolish as it doesnt take into account the limited knowledge that many people have in these areas. You could end up paying (indirectly) 7% for the advice or just 1%. That is why you get the choice to discuss fees with IFAs and can shop around. Just as you would in every other retail business.

EdInvestor

They then get 3-4 years of good returns and they are happy and then they get a negative year. This is when you find out if your own research or that of your advisor is any good. Did you realise you can lose 50% of your money on that portfolio? No? Who gave you the advice? An advisor, then complain.

Amazing isn't it, that we don't have thousands of complaints from people whose advisors put them into tech funds in the late 1990s which subsequently collapsed. All these investors were high-risk gamblers, refugees from the local casino, were they?Or perhaps they don't know they are entitled to complain?Or perhaps they have waited too long and their loss has turned back into a profit?

Of course making a loss doesn't mean you're entitled to compensation - poor performance is not grounds for a complaint.A loss doesn't mean you've necessarily been missold, and you can be sure that all the advisors and many of the providers will fight your claim every inch of the way.

I am not at all surprised if consumers have failed to notice that getting advice might also include some form of consumer protection. The landscape is littered with useless ombudsmen and regulators who are supposed to "protect" us.Just think of the worst one of all - the now disbanded Occupational Pensions Regulatory Authority, which stood idly by as more than 85,000 people lost their company pensions in windups in the last 5 years.

The Government won't pay a cent - and nor will it fork out for Equitable people, who are also victims of regulatory negligence. Call that consumer protection?

Don't make me laugh.

dunstonh

Amazing isn't it, that we don't have thousands of complaints from people whose advisors put them into tech funds in the late 1990s which subsequently collapsed. All these investors were high-risk gamblers, refugees from the local casino, were they?Or perhaps they don't know they are entitled to complain?Or perhaps they have waited too long and their loss has turned back into a profit?

Nice to see you blaming advisors again. How about the Daily Mail and other publications that encouraged people to invest in tech stocks. The Daily Mail went as far as to compare performance of those against corporate bonds. Despite the massive gulf in the difference of risk. TMF was full of people saying going to techs etc.

Once again, we highlight the problems with fashion investing.

Of course making a loss doesn't mean you're entitled to compensation - poor performance is not grounds for a complaint.A loss doesn't mean you've necessarily been missold, and you can be sure that all the advisors and many of the providers will fight your claim every inch of the way.

You are correct, a loss is not grounds for complaint. However, as a recently successful complaint highlighted (it even made the press), there has to be a sufficient audit trail as to show why that attitude to investment risk was chosen. If an experienced investor in medium risk funds can get compensation out of an advisor who sold medium risk funds because they didnt really understand what medium risk funds actually meant, even though that is what they said they wanted, then it is fair to assume that this is a potential risk area for compensation in the future.

If consumer protection was removed, I would save around £7,000 a year in costs directly and probably another £3000 - £5000 indirectly. So, whilst I have a monetary gain from there being none, I believe that the consumer protection is worth having. I dont see the endowments issue as being a negative one. I think it has highlighted some shortfalls in the quality and way things were done in the past and that will help improve things in the future.

Extractthecash

Although I agree with comments that are made, I have used discount brokers now for the last 3 years as I had a major falling out with my financial advisor, who wasn't as good as me at investing. I have taken the financial planning certificate exams (think they've changed now) but they were very easy for me when I did them as a qualified accountant. [Note not the advanced certificate which may actually be hard to pass] - My point is that I'm not convinced its hard enough to be an IFA. I know the regulator has some strict policies for companies to follow that cover much more than just exams, but I wonder whether they can really police these sufficiently..

Please note, I HAVE consumer protection with a discount broker, you have the same entitlement as if you went through an IFA. The difference is you can't really win a case with the ombudsman that you were poorly advised on a product if you didn't get advice on. I'm sure people who use a discount broker understand this as they do ram it down your throught, as their business models are dependent on not paying compensation.

Some discount brokers, rightly or wrongly, do provide recommendations, if they are extremely missleading and you lose money because something they said was wrong, surely you have a good chance to wins some compensation.

The above aside, when I started with doing my own advice, there was no fee based option for advisors which I could readily obtain. Now there is this does mean that I may go back to an advisor knowing they won't be creaming thousands and thousands of pounds off my investments through huge commissions.

I would also point out that I have calculated that over the past three years I have made 1.4% per annum additional return using a discount broker, which does make a huge difference. :j

Its really swings and roundabouts and a personal tradeoff for an individual. People who think they have advised themselves properly and are happy to loose the ability to sue their advisor could consider a discount broker. But if anyone has any doubts in their mind they should definitely see an advisor.

I am worried that we are entering a new world with regard to customers and advisors in that many customers believe that if their investment goes down then they can simply sue their advisor, which is not the case. Consumer protection is there and should never be needed if advisors did their job properly.

moneytroll

dunstonh wrote:

There are about 13 tax wrappers in the UK for investments.

Interesting posts. I was wondering what those 13 tax wrappers are. I only know of ISAs and pensions.

dunstonh

Stakeholder Pension
Personal Pension
SIPP
SSAS
FURB
FSAVC
EPP
OEIC
Unit Trust
Investment Trust
Investment Bond
VCT
ISA
PEP
ETF
SICAV

There will be more. I was just thinking off the top of my head and bound to miss a few. Some have similarities and you could argue that a couple come under "one tax wrapper". However, you get the idea.