Innappropriate Investments

fairleads

Ark_Welder wrote: »

Some manage to combine being silly with being a troll. And not everyone that makes that statement has had anything to do with either offering financial advice or any other involvment in the financial sector.

But how can we be sure? Based on some of the pro pension miss-information posted here i'd say some posters, while not being ifas themselves, are, nevertherless connected to the industry. Marriage, for example, could be one such connection.

Ark_Welder

fairleads wrote: »

But how can we be sure? Based on some of the pro pension miss-information posted here i'd say some posters, while not being ifas themselves, are, nevertherless connected to the industry. Marriage, for example, could be one such connection.

Perhaps some are, and they are free to say so should they choose to do so. But it does not apply to either family or friends of mine. My objections are to invented stories against which others are expected to be answerable.

I have had occasion on MSE to post statements that disagree with those made by IFAs. Why I have not done so recently is due to what I would term the over-emotional and irrationality of some of the posts being made. Once normal service has resumed (if such a thing is possible), then I will happily disagree with them again should the situation warrant it.

darkpool

Meeper wrote: »

When are you guys going to realise that we are no longer in the 1980's and the advice process has moved on leaps and bounds since then? This rhetoric and attacks on all IFA's as commission-grabbing salesmen is getting somewhat tiresome.

i don't think all IFAs are commission grabbing salesmen, but to pretend that all IFAs put the interests of their clients ahead of their own interests is equally silly.

i'm an honest person, but if i was an IFA and a pensioner came in with a 100k to invest i could be tempted to advise them to invest in unit trusts - even though i secretly thought another investment was better. After all the thought of 3k commission plus 500 a year trail is tempting...... who here wouldn't be tempted....

i think going to an IFA without finding out the basics first is asking to be mugged.

darkpool

Meeper wrote: »

I never mind my view being challenged, but be sure to challenge it with substance and not just the same old boring rhetoric about mis-selling and commission-grabbing.

so how about the investment bonds that started this article? you really think they provide value for money to the investor?

any private investor here tempted by a bond that pays 6 - 8% commission to the IFA straight away? i wonder how much the product provider gets in fees. One things for sure, i wouldn't invest in one, and i wouldn't recomend to anyone else to invest in one either.

so why do IFAs sell them?

dunstonh

i'm an honest person, but if i was an IFA and a pensioner came in with a 100k to invest i could be tempted to advise them to invest in unit trusts - even though i secretly thought another investment was better. After all the thought of 3k commission plus 500 a year trail is tempting...... who here wouldn't be tempted....

Why? You agree the remuneration with the individual and make the recommendation irrespective of the products used.

so how about the investment bonds that started this article? you really think they provide value for money to the investor?

Absolutely, for the right person.

any private investor here tempted by a bond that pays 6 - 8% commission to the IFA straight away?

Why are you focused on commission? Shouldnt the consumer be focused on charges instead? After all, charges are what they pay. If the insurer decides to front load a commission payment out of their own pocket and then wait to recover it over the next 7 years and hope it stays on longer to make a profit, then that is the insurers choice.

How about an investment bond that uses internal funds that equate to an annual cost of 0.1% p.a. ? Are you saying you would not invest in one like that? Plus, if it saved you £1000 a year in tax as well?

so why do IFAs sell them?

Because those that know what they are doing will use the right product for the right person and will not be swayed by silly media articles focusing on a minority or those individuals that lack the ability to see when something is good or bad in different scenarios.

Meeper

if i was an IFA and a pensioner came in with a 100k to invest i could be tempted to advise them to invest in unit trusts - even though i secretly thought another investment was better.

You would need to justify your investment decisions. If you did a Unit Trust when it wasn't appropriate, you could find yourself in trouble. Leaving the regulatory issues aside, you would be a bad adviser. If you systematically uncover a particular way forward for a client then ignore it in favour of a UT, you would be a bad adviser and your business would be doomed to failure. It's a flawed plan in general.

After all the thought of 3k commission plus 500 a year trail is tempting...... who here wouldn't be tempted....

Not really. I do business for the long-term view, and getting as much current income out of each client and giving them products which are not suitable for their needs is not a good long-term plan for any business. You get found out in the end.

i think going to an IFA without finding out the basics first is asking to be mugged.

Why do you feel the need to use such crass lines inside of an otherwise reasonable post and discussion. How dare you liken the IFA community to thieves? This is where these threads turn from reasonable debate into something else, then you blame the IFAs on here for getting all defensive. How would you like to be called a thief?

so how about the investment bonds that started this article? you really think they provide value for money to the investor?

Both myself and dunstonh have already provided a number of examples of how investment bonds are useful financial planning tools in a variety of situations. Why do you ask our opinion then ignore it?

any private investor here tempted by a bond that pays 6 - 8% commission to the IFA straight away? i wonder how much the product provider gets in fees. One things for sure, i wouldn't invest in one, and i wouldn't recomend to anyone else to invest in one either.

so why do IFAs sell them?

Those types of bonds are VERY few and far between now, as dunstonh has pointed out previously. The pricing of bonds is now done primarily along the same lines as the pricing of an OEIC, UT, ISA, etc etc. Any IFA's selling bonds at 6% - 8% commission has set the commission at that level and could just as easily have done the same product with a 3% commission rate instead. That's the individual adviser's fault, not the fault of the bond structure. Why do you persist on pointing out flaws in the system that were prevalent over the last 10-20 years that are no longer common practice and insist that it is still the way that the majority of IFA's act. I can assure you that it is not.

darkpool

dunstonh wrote: »

Why? You agree the remuneration with the individual and make the recommendation irrespective of the products used.

Why are you focused on commission? Shouldnt the consumer be focused on charges instead? After all, charges are what they pay. If the insurer decides to front load a commission payment out of their own pocket and then wait to recover it over the next 7 years and hope it stays on longer to make a profit, then that is the insurers choice.

but IFAs don't recommend some financial products.... they don't advise on direct shareholdings/ investment trusts/ property/ land/ tangible assets. I'd also suggest they don't recommend bank accounts or national savings. Generally the recommend things where there is more commission.

So why do IFAs sell things that most rich people i know would consider a mugs investment? are all these rich people i know missing out?

i focus on commission because it's likely to have an impact on what an IFA sells a customer. some IFAs do get 8% for selling investment bonds. you not think this might encourage them to sell investment bonds ahead of other investments?

darkpool

Meeper wrote: »

You would need to justify your investment decisions.

ok then, why do IFAs push unit trusts when there is fairly solid academic evidence that trackers outperform them?*

also why do IFAs not advise on property investment? after all it is a mainstream investment for a lot of people.

* at least for the big efficient developed stockmarkets. i also mean unit trusts against the relevant tracker. i don't want some simpleton comparing a UT against a tracker from a completely different market/ sector.

dunstonh

they don't advise on direct shareholdings/ investment trusts/ property/ land/ tangible assets.

Correct. Although the permissions will be opening up in future to allow that but I still wouldnt recommend those for the typical consumer.

There is a requirement (MiFID 2007) that requires the person to be able to understand the advice and consequences and issues around it. The FOS has consistently upheld complaints where advice is above the understanding of the individual. A good general position is that the person is considered cautious unless proven otherwise. You seem to want an IFA to breach their authorisations and invest above risk profile and understanding.

I'd also suggest they don't recommend bank accounts or national savings.

IFAs are the biggest introducers of NS&I products out of all the distribution channels and the only one to have a dedicated website from NS&I and communication chain. So, your suggestion is not consistent with reality.

So why do IFAs sell things that most rich people i know would consider a mugs investment? are all these rich people i know missing out?

"rich" people are actually more suited to investment bonds and they more typically make use of them.

i focus on commission because it's likely to have an impact on what an IFA sells a customer. some IFAs do get 8% for selling investment bonds. you not think this might encourage them to sell investment bonds ahead of other investments?

There has been no evidence found that is shown widespread commission bias with IFAs. There has been pockets of evidence found in some salesforces and no doubt the odd bad apple. The most common commission range on investment bonds was 5%-7%. It was typically achieved by the insurer indemnifying future trail commission. So, a 7% investment bond is no more expensive than a 3%+0.5%p.a. However, as meeper says, these types are unusual today and most have moved to fee basis and some cost no more than unit trusts (as they use unit trust/oeic funds)

ok then, why do IFAs push unit trusts when there is fairly solid academic evidence that trackers outperform them?*

Sorry? That is like saying why do people drive cars when evidence is that petrol outperforms the car.

also why do IFAs not advise on property investment? after all it is a mainstream investment for a lot of people.

Why doesnt a plumber fix your boiler?

darkpool

dunstonh wrote: »

Correct. Although the permissions will be opening up in future to allow that but I still wouldnt recommend those for the typical consumer.

There is a requirement (MiFID 2007) that requires the person to be able to understand the advice and consequences and issues around it. The FOS has consistently upheld complaints where advice is above the understanding of the individual. A good general position is that the person is considered cautious unless proven otherwise. You seem to want an IFA to breach their authorisations and invest above risk profile and understanding.

Sorry? That is like saying why do people drive cars when evidence is that petrol outperforms the car.

you suggest that people understand unit trusts/ structured products/ investment bonds etc, yet they can't undertstand buying a house to rent it out?

i'll put it another way, if someone went into your office and said "why did you sell me unit trusts 10 years ago? i now realise there is a lot of evidence that trackers outperform the relevant UT. perhaps the existence of trail commission influenced your advice?" what would you say to that?