Record repayment for bad financial advice

Lokolo

Rollinghome wrote: »

It's a fee if they rebate ALL the commission, including trail commission back to the client, as some do. If not then it's just a clever way used by the dodgy ones of getting both a fee and commission.

The RDR intends to ban the product providers from paying any commission to advisers who are supposed to be working on behalf of the client.

Does the IFA have to state if they are recieving commission (such as trail) or not?

feesarefare

Rollinghome wrote: »

It's a fee if they rebate ALL the commission, including trail commission back to the client, as some do. If not then it's just a clever way used by the dodgy ones of getting both a fee and commission.

The RDR intends to ban the product providers from paying any commission to advisers who are supposed to be working on behalf of the client.

thanks for your reply , however I think you have may have missed my point.
I dont think its a clever way used exclusively by the dodgy ones. Its not whether they get a fee and a commission , if its percentage based it doesnt matter what you call it.

Rollinghome

Lokolo wrote: »

Does the IFA have to state if they are recieving commission (such as trail) or not?

I understand the product providers won't be able to pay commissions, full stop. The advisers are then expect to recommend for the ones that give best value.

feesarefare wrote: »

thanks for your reply , however I think you have totally missed my point.
I dont think its a clever way used exclusively by the dodgy ones. Its no whether they get a fee and a commission , if its percentage based it doesnt matter what you call it.

I think I understand your point but would agree only up to a point.

If the adviser's fee is based on the amount invested, i.e. a fixed percentage, then yes, there is an incentive to persuade the client to invest as much as possible. But that probably applies to hourly based advice too. All businesses want to maximise their trade.

The big distinction is that they shouldn't benefit from recommending one product rather than another. Such as funds that have TERs of only 0.2% but pay no commission over funds with TERs over 2% and pay 1% annual trail commission - such as the failed Arch Cru funds.

feesarefare

Rollinghome wrote: »

But that probably applies to hourly based advice too.

How does that work ? An hourly based adviser gets paid whether or not
or where any money is invested.

Lokolo

feesarefare wrote: »

How does that work ? An hourly based adviser gets paid whether or not
or where any money is invested.

No. Because there will be more work involved. Therefore more hours work. Therefore more monies. (I assume thats the point rolling was making anyway!)

dunstonh

How does that work ? An hourly based adviser gets paid whether or not

As would one doing a fixed price. If you look at many of the client fee agreements that now exist, where fixed pricing is used, its priced in stages. i.e. an amount for factfinding, an amount for research, an amount for the report etc. So, you get paid for each stage of the work you do regardless of the outcome.

That was the line that commission base IFAs pushed very hard. Their main concern was with the effect on the less well-off. Could almost imagine the tears running down their cheeks.

You choose to ignore it due to your anti IFA bias. However, recent articles have highlighted areas where people are expected to be worse off and the FSA themselves have admitted smaller transactions (typically at the lower end of the market) will be worse off.

An IFA posted the other day on money marketing that they had a client that insisted on going fee basis and agreed a £500 fee. The commission option would have been £110. So, the person in that case was worse off by going fee. Had there been another zero on the size of the pot it would be different but you do have to recognise that there will be consumers that lose out.

feesarefare

dunstonh wrote: »

An IFA posted the other day on money marketing that they had a client that insisted on going fee basis and agreed a £500 fee. The commission option would have been £110. So, the person in that case was worse off by going fee. Had there been another zero on the size of the pot it would be different but you do have to recognise that there will be consumers that lose out.

Can you post the link so we can see the full story.

Thanks

Rollinghome

dunstonh wrote: »

An IFA posted the other day on money marketing that they had a client that insisted on going fee basis and agreed a £500 fee. The commission option would have been £110. So, the person in that case was worse off by going fee. Had there been another zero on the size of the pot it would be different but you do have to recognise that there will be consumers that lose out.

What do you mean "the commission option would have been £110"? So the kindly IFA was trying to charge the client less but he wanted to pay more? Wouldn't an honest man charge the same fee as he would have earned in commission?

Do you mean the initial commission would have been £110? What about any trail commission? Was the adviser going to rebate all that which over a normal investment period could be far more than just the front-end commission?

The real point is there's no point going to a normally commission-based IFA asking for proper fee-based advice whose main expertise is as a salesman. You'll probably get the same stuff as you would paying commssion because they don't have any knowledge of the products that don't pay them commission. Even worse, the dodgy ones are giving the impression they're fee-based but in fact take the trail commission.

I'm not anti-IFA and neither is the FSA. They are anti commission-only salesmen posing as being advisers when in reality they just acting on behalf of the companies who pay them. People need decent financial advice which is why it should be available from someone they can trust who is genuinely unbiassed and working for their best interests.

magpiecottage

If an IFA charges on a commission basis then he is taking a gamble - he may get more or he may get nothing.

Trail commission on something giving £110 initial - probably £25 per annum give or take. Thats about 50 pence per week, less a proportion of his overheads, such as premises, insurance, regulatory costs, levies to the FOS and FSCS (including contributing to reimbursing those who have lost out in the Keydata debacle which was nothing to do with him), consumer credit licence, ICO registration and so on. Once he has paid all that he will be taxed on it.

He may also have an ongoing liability if the customer chooses to complain which will have to be defended and/or redressed out of his own pocket (it will almost certainly be under any insurance excess which will be at least £2,500 and probably £5,000).

The adviser may get more or less.

By contrast, if you agree a fee, you have agreed just that, either based on the actual number of hours taken or what the adviser estimates it will be.

A lot of the time, it depends on the customer. One of my clients offers the choice to everybody but last year precisely one chose to take pay by fee. Even professionals who charge only fees for their services wanted to use commission - even though it was made clear that it would come out of their investments and he would get more for it.

On the other hand as a friend of mine who repairs boats says, if you don't want to pay for the service, don't ask for it. You are perfectly entitled to sort it out (or mess it up) for yourself.

But don't come crying to the IFA afterwards.

dunstonh

Can you post the link so we can see the full story.

http://www.moneymarketing.co.uk/pensions/rdr-could-reduce-omo-usage-further/1007229.article#commentsubmitted

What do you mean "the commission option would have been £110"? So the kindly IFA was trying to charge the client less but he wanted to pay more? Wouldn't an honest man charge the same fee as he would have earned in commission?

as maggpiecottage says above, with commision you average out the remuneration. It is in effect a cross subsidised business model. With fee basis you charge the same (unless you personally want to discount it).

Do you mean the initial commission would have been £110? What about any trail commission? Was the adviser going to rebate all that which over a normal investment period could be far more than just the front-end commission?

It was an annuity so no trail.

The real point is there's no point going to a normally commission-based IFA asking for proper fee-based advice whose main expertise is as a salesman. You'll probably get the same stuff as you would paying commssion because they don't have any knowledge of the products that don't pay them commission. Even worse, the dodgy ones are giving the impression they're fee-based but in fact take the trail commission.

All IFAs offer fee option. There is no such thing as commission only IFA. The important thing is to agree the level of remuneration. That has to be the priority. Whether one wants to charge £500 or £2000 is a secondary issue as that is down to choice of the consumer but if they know in advance they are the charges they can then make a choice.

Even worse, the dodgy ones are giving the impression they're fee-based but in fact take the trail commission.

That isnt dodgy in the slightest. That is a sensible business model for clients that want servicing. It is also the same business model that the DIY companies use that Martin promotes on this website. i.e. Hargreaves Lansdown. If you dont want the servicing then you dont have to have it. If you do, then if that is their charge there is no problem.

I'm not anti-IFA

Yes you are. You never have a good word to say. You never criticise any other distribution channel. Just the IFAs who have the lowest consumer complaints of any of the distribution channels.

On the other hand as a friend of mine who repairs boats says, if you don't want to pay for the service, don't ask for it. You are perfectly entitled to sort it out (or mess it up) for yourself.

This is going to be a big issue going forward. If you havent agreed any ongoing servicing contract with an IFA you wont be able to phone them up and pick their brains or ask questions or do something for you free of charge. That will cost you money. At the moment, people are used to contacting advisers and getting the information they want at no explicit cost.