Why do the British public have a jaundice view of financial planners?

dunstonh

The RDR changes will see most people better off but it will require them to have a better understanding of fees and commission.

For example after RDR comes into force an IFA can collect the fee via the commission system just as they can now. However, the only real difference is that instead of the insurer/provider deciding what the IFA gets paid, the client will. So, there will be no need to write a cheque out for advice. It can be collected in the same way it currently is and has been for a number of years.

Also, fee based IFAs can beat nil commission products. That is because commission and fees are not priced 1:1. They are not the same thing. If you are 30 and pay £100pm into a pension and pick a nil commission stakeholder pension (as Martins article gives an example), then an IFA can still take around £1500 as a fee and come in cheaper than that nil commission stakeholder. Some people have a problem understanding how that can be the case and it will be that which will need to be taught. They assume that not using an IFA means they get cheaper. However, that is not always the case.

As jem says above, most will see little difference in how things work in my opinion. The bottom end of the market will probably be priced out of independent advice as its not cost effective for a fee based IFA to deal with small cases. Tied salesforces are likely to move to restricted advice which has lower standards, lower quality and allows higher remuneration. So, they can afford to deal with the lower end. The middle market will cost about the same and the higher net worth individuals will be better off.

I have been working on an agreed remuneration basis for some years now but still occasionally put the odd commission case through where it is cost effective to do so (annuity on open market options for example). I think you will find any IFA that has been working with agreed remuneration will tell you that it makes little or no difference to their business (or if anything it increases it) as long as you get the opportunity to explain the difference. The move to fee basis can be quite scary for an adviser that hasnt worked that way before though. So, I can understand why some are apprehensive.

dwsjarcmcd

vikingaero wrote: »

Your point about a solicitor or accountant is different. A solicitor or accountant performs a specific service. For instance my solicitor advises me where I let out a property on a commercial lease. His advice is advice to help me make decisions and warn me of perils and pitfalls. He has no product to sell and no commission to gain as he bills me hourly for his time. If I take up a lot of his time I pay more. With a FA it's different and less transparent. I never know if the £100k I'm bunging into a scheme is the best scheme financially for me, or a mediocre scheme where the FA gets the best rate of commission.

I think this is spot on but I have a few points to add. Charging £200 per hour is fine for complicated cases of HNW clients but it is not for someone so risk averse that they only want a basic savings account. If someone has assets of say, £20k it would not be cost effective to use an IFA in my opinion.

I have no idea what the average liquid holdings are in this country but I would hazard a guess at a lot less than £20k, which rules out the majority.

You talk about the 'lifetime guarentee' but this doesn't cover the return, it's irrelevant if your investment drops like a stone provided all the paperwork matches the customers attitude to risk. I am not dismissing this but the way it's written makes it sound like something it isn't.

Finally to answer your question why the public doesn't value financial planners, I think it is because their trade bodies have totally failed to get across any coherant message about how to find them, what they do and the benefits they can provide.

A classic example of this is basic life assurance. A commoditised product which pays heafty commissions. Nothing wrong with that but would the public understand the importance of trusts and tax planning in all this, yet execution only brokers, comparison sites and banks clean up here because the complex message behind these products is rarely heard, other than on sites like this. The IFA Trade bodies can't get this fairly simple message across.

There are lots of great IFA's out there and some that will effectively do a 'profit share' by way of a % of the fund value. I know one I would recommend to anyone.

mikey72

dunstonh wrote: »

The RDR changes will see most people better off but it will require them to have a better understanding of fees and commission.

For example after RDR comes into force an IFA can collect the fee via the commission system just as they can now. However, the only real difference is that instead of the insurer/provider deciding what the IFA gets paid, the client will. So, there will be no need to write a cheque out for advice. It can be collected in the same way it currently is and has been for a number of years.

Also, fee based IFAs can beat nil commission products. That is because commission and fees are not priced 1:1. They are not the same thing. If you are 30 and pay £100pm into a pension and pick a nil commission stakeholder pension (as Martins article gives an example), then an IFA can still take around £1500 as a fee and come in cheaper than that nil commission stakeholder. Some people have a problem understanding how that can be the case and it will be that which will need to be taught. They assume that not using an IFA means they get cheaper. However, that is not always the case.

As jem says above, most will see little difference in my opinion. The bottom end of the market will probably be priced out of independent advice as its not cost effective for a fee based IFA to deal with small cases. Tied salesforces are likely to move to restricted advice which has lower standards, lower quality and allows higher remuneration. So, they can afford to deal with the lower end. The middle market will cost about the same and the higher net worth individuals will be better off.

I have been working on an agreed remuneration basis for some years now but still occasionally put the odd commission case through where it is cost effective to do so (annuity on open market options for example). I think you will find any IFA that has been working with agreed remuneration will tell you that it makes little or no difference to their business (or if anything it increases it) as long as you get the opportunity to explain the difference. The move to fee basis can be quite scary for an adviser that hasnt worked that way before though. So, I can understand why some are apprehensive.

Hmm.
I do have a grudging respect for you, despite usually a completely juxtaposed viewpoint.
Can I have the version using no more than two syllables, or at the most three, as I am back at work in the morning, and am making the most of the highland park tonignt?
Thanks

dunstonh

Can I have the version using no more than two syllables, or at the most three, as I am back at work in the morning, and am making the most of the highland park tonignt?

The rules change at the start of 2013 to ban commission on higher level regulated products (investment backed mostly). Not insurance or mortgages (currently).

1 - Fee basis will be the same or cheaper for all but the bottom end of the market
2 - fee basis can beat commission or even nil commission on all but the smallest cases
3 - fees will be allowed to be collected via the product using the commission system (i.e. you wont have to write a cheque for the fee). You agree the fee and the fee it taken from the product
4 - fee basis means you are buying advice and administration. The product you end up with is not in any perceivable way a financial advantage to the adviser.
5 - Many IFAs are already working on the revised rules and have been for some time.
6 - Consumers need to understand to the difference between fees and commission.

I do have a grudging respect for you, despite usually a completely juxtaposed viewpoint.

We both post at times playing devils advocate. However, the good thing is that you can disagree without going off on one. Unlike some people who prefer to argue and be rude.

lordhaldon

dwsjarcmcd wrote: »

You talk about the 'lifetime guarentee' but this doesn't cover the return, it's irrelevant if your investment drops like a stone provided all the paperwork matches the customers attitude to risk. I am not dismissing this but the way it's written makes it sound like something it isn't.
QUOTE]

Thank you and you have some very valid points well made. However, this particular forum is for life assurance and not investments and therefore does not include investments, their capital value or their intented return.

PS. Thank you dunstonh. Never met you, don't know you but you sound like a spot on type of person - and I am sure your clients appreciate you.

real1314

lordhaldon wrote: »

dwsjarcmcd wrote: »

You talk about the 'lifetime guarentee' but this doesn't cover the return, it's irrelevant if your investment drops like a stone provided all the paperwork matches the customers attitude to risk. I am not dismissing this but the way it's written makes it sound like something it isn't.
QUOTE]

Thank you and you have some very valid points well made. However, this particular forum is for life assurance and not investments and therefore does not include investments, their capital value or their intented return.

PS. Thank you dunstonh. Never met you, don't know you but you sound like a spot on type of person - and I am sure your clients appreciate you.

Perhaps it would be useful, to avoid people going off the "forum" topic, if you defined exactly what you mean by "financial planners"?

I'd say I'm a "financial planner" in that I plan my own finances, you seem to have a different take on the term and have expanded it to include IFAs.

Perhaps you should also ensure you read threads properly, to ensure you don't mix up different posters, and also bear in mind the site rules about being nice? :cool:

vaio

lordhaldon wrote: »

......I don' t know what someone like dunstonh would charge but friends of mine charge £200 per hour with a minimum of £600 per yearas IFA's..........

lordhaldon wrote: »

......Thank you and you have some very valid points well made. However, this particular forum is for life assurance and not investments and therefore does not include investments, their capital value or their intented return.......

Hmm, three meetings a year at £200 a pop and only deal with life assurance and not anything to do with investments.

Can't see a huge queue forming to be honest

dacouch

vaio wrote: »

Hmm, three meetings a year at £200 a pop and only deal with life assurance and not anything to do with investments.

Can't see a huge queue forming to be honest

The current system pays them commission out of your investment / pension or life insurance etc.

Under the current system the first and sometimes second years premiums go to pay the financial advisers commission. So a life policy that you pay £50 a month for could have between £600 and £1200 of your money going to commission. Under the new system and the way Dunstonh currently works the product you buy would be cheaper or more of your money goes into the investment.

Under the commission based system you have the potential for some of the advisers being influenced by the amount of commission they receive when recommending a particular provider

When you look at it that way it would probably be cheaper for a lot of people when using their services.

lordhaldon

vaio wrote: »

Hmm, three meetings a year at £200 a pop and only deal with life assurance and not anything to do with investments.

Can't see a huge queue forming to be honest

I said as IFA's - and yes they are extremely busy

foggytown

lordhaldon wrote: »

Thank you. However ther is comeback, I am am sure that dunstonh will correct me , but my belief is that the advice you recieve from an IFA has virtually a "lifetime" guarantee.

Like Lady MacBeth, methinks you protest too much. You have an agenda. This alone undermines your credibility.