Record repayment for bad financial advice

Rollinghome

magpiecottage wrote: »

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

That's right. Just like most direct salesmen, whether selling insurance, double-glazing or kitchens.

They might spend hours "advising" prospects but don't earn anything until one bites and they get a sale. So the one that does bite has to overpay for all the ones that went elsewhere just to give the salesmen a decent wage.

Just like commission-based financial advisers. Which is why it costs so much in commission payments for so little.

If an IFA provides a service that his clients consider cost-effective then they'll pay for it. The IFA wouldn't have to get paid by the product providers for selling for them. It's those whose whole experience is in selling and have little real financial expertise of value who are so worried. The ones who are confident with the value of their service look forward to not being viewed in the same way as the less able.

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.

And of course much cheaper than being ripped off by a Park Row IFA or another chancer on commission.


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Rollinghome

dunstonh wrote: »

It is in effect a cross subsidised business model.

Yes just like all direct sales operations. Those that buy subsidise the time spent on those that don't buy.

It is also the same business model that the DIY companies use that Martin promotes on this website. i.e. Hargreaves Lansdown.

The DIY service that H-L provide does not offer advice. It is therefore not the same business model at all. You are supposedly providing advice and yet getting paid by the providers for their selling products that carry different rates of commission.

dunstonh wrote: »

Yes you are. You never have a good word to say. You never criticise any other distribution channel.

I'm fully aware of the problems in other distribution channels but don't accept the line you constantly pump out that salesmen who work for banks on salary plus bonus are somehow more corruptible than IFAs who work for companies on unsalaried commission-only contracts. Especially as many (including you?) will have been selling for banks or insurance companies previously anyway. Both are likely to be little more than salesmen.

Don't worry Dunston. If your clients think your advice is worth paying for they will. But of course if none of your clients would willingly pay you an explicit fee for what you offer then I fully understand your concern.


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dunstonh

The DIY service that H-L provide does not offer advice. It is therefore not the same business model at all. You are supposedly providing advice and yet getting paid by the providers for their selling products that carry different rates of commission.

So, why not criticise them for being more expensive and providing less?

I'm fully aware of the problems in other distribution channels but don't accept the line you constantly pump out that salesmen who work for banks on salary plus bonus are somehow more corruptible than IFAs who work for companies on unsalaried commission-only contracts.

You may not but your opinion is not backed up by the facts. Consistently, the FOS publish their stats which show IFAs have the lowest complaints despite handling the majority of transactions. Yet the banks have consistently the highest number.

Especially as many (including you?) will have been selling for banks or insurance companies previously anyway. Both are likely to be little more than salesmen.

The way people move around careers nowadays, it doesnt matter what they have done in the past. Also, most professions have career paths that require them to do lesser roles before they take on more important roles.

Don't worry Dunston. If your clients think your advice is worth paying for they will. But of course if none of your clients would willingly pay you an explicit fee for what you offer then I fully understand your concern.

I have no concerns at all. I already operate on a post RDR compliant model.

Rollinghome

dunstonh wrote: »

So, why not criticise them for being more expensive and providing less?

They don't appear here day after day banging the drum pretending they're whiter than white as you do. Of course there's a problem as the FSA, who are responsible for dealing with complaints have made clear and as the article you linked to made clear. http://www.moneymarketing.co.uk/pensions/rdr-could-reduce-omo-usage-further/1007229.article#commentsubmitted :

Fitch believes the switch to adviser fees should end commission‐driven sales and in theory increase trust in advisers.

You pretending there isn't creates an impression of sleaze and does a terrible disservice for decent IFAs. The public are fully aware of the problem too which is why there is so little confidence in commission based IFAs. Let's hope that changes when the commission driven mentality is ended as the FSA hopes.

Other comments in the link you gave from more open IFAs:

On the contrary i have found that clients from all walks of life will pay a fee for independant advise if the option is given to them in an open and positive maner.

I have been working a RDR model for some time now and have been suprised at the response from clients when discussing the fee option

Some sensible comments and some not so sensible. When oh when is the IFA community going to let go of commission and move forward. RDR is coming, commission is going. We need innovative business models to deliver consumers the service they need at a price they will pay. Not the service we currently offer at a higher price than customers will pay.
The status quo is not an option when will the majority of the IFA community start to look ahead?

Advisers who are confident clients will value their advice enough to pay for it welcome the RDR while the dodgy salemen types are terrified that their game is up. Your excuse seems to be: "We may be bad but the other lot are even worse."

The way people move around careers nowadays, it doesnt matter what they have done in the past. Also, most professions have career paths that require them to do lesser roles before they take on more important roles.

So you'd rather not say. Do your clients know your background or do you keep it a secret from them too?

Rollinghome

feesarefare wrote: »

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.

From your name I assume you're an IFA working on a genuine fee basis? How does your stucture work and how do you think it benefits the client?

feesarefare

Rollinghome wrote: »

From your name I assume you're an IFA working on a genuine fee basis? How does your stucture work and how do you think it benefits the client?

Well spotted - I take it from your name that you sell caravans?;)

We charge fees to produce a financial report covering all areas (£1000 + vat) . If the report then makes recommendations the client is given a fee estimate for implementation (hourly rate). At that stage, like the boat analogy above they can walk away if the want.

Any commissions that are generated at implementation (protection products/annuities) offset the fees.
For investment, pensions, Isas we use a platform so there are no entry costs, no trail commission only the fund managers charges and platform charge. Typically the usual 1.5 amc reduces to 0.8.

For ongoing planning (16 point annual reveiew) the clients pay a monthly retainer (£75) irrespective of the amount they have invested.

Therefore everyone pays the same for the same service and there is no commission bias or cross subsidy. Works for us.

jem16

feesarefare wrote: »

If the report then makes recommendations the client is given a fee estimate for implementation (hourly rate).

What would the average fee for implementation usually be?

Any commissions that are generated at implementation (protection products/annuities) offset the fees.

Presumably this offsetting would disappear after RDR?

For investment, pensions, Isas we use a platform so there are no entry costs, no trail commission only the fund managers charges and platform charge. Typically the usual 1.5 amc reduces to 0.8.

What platform do you use? Is there an initial/annual platform charge?

For ongoing planning (16 point annual reveiew) the clients pay a monthly retainer (£75) irrespective of the amount they have invested.

The normal trail commission is 0.5%. If the investment is £180,000 this would equal £900. So at the moment anyone with less than £180,000 would be better off with trail commission? Perhaps this is what is meant by the less better off likely to be worse off after RDR?

Therefore everyone pays the same for the same service and there is no commission bias or cross subsidy. Works for us.

For the clients though some will gain and some will lose. This is where choice is good but I fear this may be lost after RDR.

Rollinghome

feesarefare wrote: »

Well spotted - I take it from your name that you sell caravans?;)

Or it could be second hand cars with bonky engines.

So presumably your costs are lower because you don't spend half your time trying to flog investment deals with catch-as-catch-can pricing that don't come off and has to be paid for by the punters that do buy? The "cross-subsidy" that Mr D referred to.

I think the term IFA is misleading. We should have Independent Financial Advisers who are independent and don't get paid by the investment companies to sell their wares, and FFSs, Freelance Financial Salesmen for the rest.

Rollinghome

jem16 wrote: »

The normal trail commission is 0.5%. If the investment is £180,000 this would equal £900. So at the moment anyone with less than £180,000 would be better off with trail commission? Perhaps this is what is meant by the less better off likely to be worse off after RDR?

Is the advice of any value if it can't be relied up due to the known problem of commission bias that the FSA states it wants to eliminate? No advice might be better than biased advice.

jem16

dunstonh wrote: »

What is expected is that wealthy consumers will be better off as the fees should have some sort of cap/maximum. Smaller transactions will be worse off as the fees will be higher than the commission option. Those in the middle will see little or no difference.

Can you quantify the different levels - i.e. above what would be better off, bleow what would be worse off and what is the middle?