MSE News: FSA bans commission to advisers on investments

TBeckett100

Pincher wrote: »

How about £20 per hour?
That's about a teacher's salary.

Don't tell me they think they are more qualified than a teacher.
I would say they are on a par with a travel agent qualification wise.
I passed the Investment Management Certificate in 2001.
It's funny, there is a section on professional conduct and ethics.:rotfl:

targets are are about £100,000 to £250,000 per year income so i dont think £20 per hour will cover it. Running a firm isn't cheap I am told.

Using Trusts etc we are able to save clients a fortune on IHT and we are talking hundreds of thousands of pounds. this adds value. When people get divorced and we assist with calculations and work with lawyers to achieve a fair result, this adds value.

I think what needs to change is perception of IFAs as a rule. We are not glorified double glazing salesman or equal to travel agents. The damage that has been done by direct sales and bank 'advisers' has been immense. I have not spent the past ten years of my life in an industry i think is a sham, though probably because I have prided the establishments i have worked in.

Thankfully the people we really serve, the ultra high net worth view our services as benefit to them. Those who like to shop around when investing a few thousand thankfully are few and far between in my area.

Also, commission generating products are not evil. Take the Aviva Investment Bond. It is quite possible for the client to have a base 1% amc charge a year, other charges compensated by enhanced allocation rates an we still get paid. Under the new regime it will be an initial charge and probably very similar charges moving forward.

The FSA needs to look at the rot in the industry. Moving qualifications up to virtually degree level (and believe me we now have to sit a lot of exams) is good and hopefully will sort out saleman of the industry.

A lot of lawyers recognise IFAs as being equal partners in assiting with clients.

Pincher

TBeckett100 wrote: »

Thankfully the people we really serve, the ultra high net worth view our services as benefit to them. Those who like to shop around when investing a few thousand thankfully are few and far between in my area.

It's like a Harley Street doctor saying they only see poor people stepping through the door once in a while. The FSA is "supposed" to protect the interests of everybody. The rich already have money, it's the people who have saved a few thousand through hard work that really can't afford to squander it.

If you can get 4% return, but the middlemen take 5%, the system doesn't work, so we have to find a way of providing decent advice almost free. I want a government supported non-profit making scheme where qualified "home economics" advisors work out of offices, but do home visits where there are mobility problems. Effectively, it's a social services care specialist for your finance, inlcuding utility bills. Any refundable commission should be refunded, otherwise goes towards funding the scheme.

The advisors should be performance rewarded, not on the amount of business generated, but on the financial well being of their clients relative to the norm for the area. You add value by arresting arears and defaults, which is demonstratable by creditor agreements. Any eligible benefits and subsidies should be identified, which are also demonstratable. You can demonstrate utility bills savings by recoding tariffs and bills before and after. You do a financial audit, a REAL ONE, not a pretext to sell, before you start, and a regular check up to show financial improvement, and continued well being. Like a GP, you shouldn't lose money just because the patient is healthy.

The smooth talkers can go woo rich investors in Berkeley Square, and they deserve each other, but that has nothing to do with the majority of people.

The justification for funding such a scheme is in the money it saves on repossession and subsequent housing burden on the local authority, income support, etc. There is also waste to businesses in debt chasing, court time, etc. All because greedy financial advisers threw away their life's savings on an investment that is juicy only because of its commission.

The qualification for this kind of adviser doesn't need accountant level stringency, so it should be possible to recruit and train advisors. With plenty of clients, it should be an attractive career for some.

dunstonh

If you can get 4% return, but the middlemen take 5%, the system doesn't work, so we have to find a way of providing decent advice almost free.

No-one takes 5%. Typically the adviser cut is around 0.5% p.a. So, getting an average of over 10% a year after charges is not that bad.

. I want a government supported non-profit making scheme where qualified "home economics" advisors work out of offices, but do home visits where there are mobility problems.

No adviser qualified enough would be interested in that. The Govt won't pay enough as income. Taxpayers shouldnt have to pay for advice and if they dont, who will?

The advisors should be performance rewarded, not on the amount of business generated, but on the financial well being of their clients relative to the norm for the area. You add value by arresting arears and defaults, which is demonstratable by creditor agreements. Any eligible benefits and subsidies should be identified, which are also demonstratable. You can demonstrate utility bills savings by recoding tariffs and bills before and after. You do a financial audit, a REAL ONE, not a pretext to sell, before you start, and a regular check up to show financial improvement, and continued well being. Like a GP, you shouldn't lose money just because the patient is healthy.

impossible to do.

spenderdave

dunstonh wrote: »

No-one takes 5%. Typically the adviser cut is around 0.5% p.a. So, getting an average of over 10% a year after charges is not that bad.

Well I recently saw one of the HSBC 'IFAs' - i suspect he is far from 'Independent' even though he said he was as he didn't seem to know that much about my existing investments.... He gave me the option of commission or fee based charging. I was a bit taken back by what he quoted for fee based - '£190 per hour with a minimum fee of £1500 plus VAT'. Needless to say I went the commission route, as on an investment of £35k that does work out at 5%!! (and he agreed that commission was the better option).

His charge obviously includes the time he spent afterwards sorting out paperwork etc, but I doubt he spent enough of that to justify 1.5k. Most people would be happy with one or two hours at £100/h as that is similar to the commission rates, but the HSBC fees seem decidedly OTT!

magpiecottage

Rollinghome wrote: »

The reason presumably being because he carefully pitches his fees at a price that will deter punters from not opting for commission and minimises how the compounding effect of paying commission damages returns.

You have absolutely no way of knowing what he may or may not say. I have seen plenty of cases where even the costs of writing business have not been covered.

Certainly £360 to set up an ISA under commission is less than the £1,000 (excluding VAT) that others charge.

dunstonh

i suspect he is far from 'Independent' even though he said he was as he didn't seem to know that much about my existing investments.

You are right. HSBC "IFAs" are more panel based and do seem to recommend in house options more than they should.

He gave me the option of commission or fee based charging. I was a bit taken back by what he quoted for fee based - '£190 per hour with a minimum fee of £1500 plus VAT'. Needless to say I went the commission route, as on an investment of £35k that does work out at 5%!! (and he agreed that commission was the better option).

Blimey. I need to put my fees up! there isnt VAT on fees as long as you purchase a product. VAT is only charged when you dont buy a product. However, those fees are high. However, the banks seem to get away with it.

Most people would be happy with one or two hours at £100/h as that is similar to the commission rates, but the HSBC fees seem decidedly OTT!

About 4-6 hours on a simple one from beginning to end.

Rollinghome

dunstonh wrote: »

The charges for DIY are likely to go up. Or at least explicitly they will.

They won't go up, if anything the reverse as IFAs are forced to be more competitive. Going up "explicitly, i.e. knowing exactly what the costs are, isn't going up in my eyes and will be a very good thing.

Too late trying to frighten the punters now, it's a done job.

Pincher wrote: »

How about £20 per hour?
That's about a teacher's salary.

Don't tell me they think they are more qualified than a teacher.
I would say they are on a par with a travel agent qualification wise.
I passed the Investment Management Certificate in 2001.
It's funny, there is a section on professional conduct and ethics.:rotfl:

Too true, if you're a good salesman you can move from the fruit and veg department of a Sainbury's supermarket to being an IFA, just as Danny Cox of Hargreaves Lansdown did. No educational requirements needed.

I fear that many IFAs are going to learn what they are worth as advisers rather than as now as salesmen for the product providers. They may have been worth that £250 an hour to the providers, after all it was only our money they were paying them, but when they have to justify their charges to us the investors they'll need to give damned good value.

No more backhanders to sell us rubbish products. Those who really can give valuable honest advice will thrive while the rest will have to go back to the fruit and veg dept or selling windows.


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TBeckett100

Pincher wrote: »

It's like a Harley Street doctor saying they only see poor people stepping through the door once in a while. The FSA is "supposed" to protect the interests of everybody. The rich already have money, it's the people who have saved a few thousand through hard work that really can't afford to squander it.

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banning commission will do the opposite of giving advice for all. I will spend time with a client doing an ISA knowing it is costing the company as i wish to provide a service. In most companies that is cross subsidised by the more profitable clients. If you are going to accept commissions it is fair to make everyone welcome. Of course the larger the investment the less % taken etc.

Take commission away and the £50 a month saver wont get independent advice.

There is prob an argument to suggest that a HRT paying a £6,000 fee would have to earn £10,000 whereas £6,000 is £6,000 from commission.

I can easily measure my value added. 1) is a growing referred client bank and 2) pulling people out of commercial property 4 months before it all went wrong.

dunstonh

They won't go up, if anything the reverse as IFAs are forced to be more competitive. Going up "explicitly, i.e. knowing exactly what the costs are, isn't going up in my eyes and will be a very good thing.

Currently the likes of HL get marketing payments from the fund houses, they get a share of the AMC. They keep a share of the adviser payment. That won't happen post RDR. So, where is their income going to be if they dont charge an explicit charge?

I can easily measure my value added. 1) is a growing referred client bank and 2) pulling people out of commercial property 4 months before it all went wrong.

Most can. These threads are a bit of a joke really. They allow the disillusioned with a chip of their shoulders to have a go at the distribution channel with the lowest complaints stats. Logically, people and regulators should focus on where the problems are. That isnt how it works though.

Rollinghome

TBeckett100 wrote: »

banning commission will do the opposite of giving advice for all. I will spend time with a client doing an ISA knowing it is costing the company as i wish to provide a service. In most companies that is cross subsidised by the more profitable clients. If you are going to accept commissions it is fair to make everyone welcome. Of course the larger the investment the less % taken etc.

Take commission away and the £50 a month saver wont get independent advice.

There is prob an argument to suggest that a HRT paying a £6,000 fee would have to earn £10,000 whereas £6,000 is £6,000 from commission.

I can easily measure my value added. 1) is a growing referred client bank and 2) pulling people out of commercial property 4 months before it all went wrong.

The IFAs are so rattled sounds as if the FSA have got it right. Perhaps that IFA will take his case to the European Court of Human Rights for having his gravy train cancelled as he threatened. All good things must come to an end chaps.

With commission being paid by the product providers there never was independent advice. The term "independent" was always nonsense. IFAs were dependent on the product providers for whom they provided a sales service. From 2013 they'll be dependent on the consumer who pays for it all. Excellent.

And think about it, if IFAs refuse to provide a service at a reasonable cost to small investors then there'll be less work and a lot of them are going to be out of a job. Or they can reduce their charges to a reasonable level.

A lot of you were presumably well worth £250 an hour as salesmen for the product providers selling their higher profit products but you won't be worth it to consumers who pay for it all unless you prove yourselves as good at giving advice as you were at selling. As I think magpiecottage pointed out earlier, few people currently regard the charges demanded by IFAs as acceptable unless hidden in commission payments. They'll need to come down.

My guess is that a lot of the salesmen will move on to other sales jobs while those with the ability to give good valuable advice, or can learn, will prosper and more like them will move into the industry. And it will be us the consumers who decide whether the advice is worth our money.

I can easily measure my value added. 1) is a growing referred client bank and 2) pulling people out of commercial property 4 months before it all went wrong.

And did you pull your clients out of equities and bonds and put them into cash before they crashed 40% in 2008 or even stop selling them? Of course not because you would have lost all your trail commission.

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