Are People Scared of Mortgage and Financial Advisers?

gaz2373

Hi I am relatively new to this forum but I don’t understand why people don’t speak to professionals about getting a mortgage or related financial advice. Are they scared? Or is it down to bad experiences in the past?

A proper mortgage adviser has had to pass several exams and maintain current knowledge of products and the market in order to trade. There are some dodgy ones but if the firm checks out with the FSA you can’t go to far wrong.

But looking at this forum people would rather post on the internet, income details and the amount of debt they have, all to receive useful comments such as. “you need to pay off your credit card” . Than pick up the phone and speak to a professional.

I just don’t get it.

I would appreciate some feedback on this as to reasons why.

AMO

The reason is because whilst the financial industry is difficult to understand which is why we have such professionals, we don't trust them completely because we can never be sure whether their recommendations are driven by financial incentive.

If you have two mortgages, or two pensions, or two whatever, the financial advisor will most likely recommend the one that gets them the highest commission.

AMO

gaz2373

AMO wrote:

The reason is because whilst the financial industry is difficult to understand which is why we have such professionals, we don't trust them completely because we can never be sure whether their recommendations are driven by financial incentive.

If you have two mortgages, or two pensions, or two whatever, the financial advisor will most likely recommend the one that gets them the highest commission.

AMO

I agree commission could be a driver for sum advisers who perhaps do not charge fees, but if a fixed fee is charged the chances of this happening is slim. It is also a requirement to include a recommendation letter and why a product has been chosen above another that may seem better.

EdInvestor

gaz2373 wrote:

Hi I am relatively new to this forum but I don’t understand why people don’t speak to professionals about getting a mortgage or related financial advice. Are they scared? Or is it down to bad experiences in the past?

As you can see, this forum has lots of threads about endowment misselling, so one suspects that bad experiences in the past may have something to do with it.

cpu

Definately a trust issue with me. I prefer to get some background advice first from people who have no vested interest in my dealings, that way I can at least educate myself slightly before dealing with the 'experts' and I might be in a better position to ascertain whether I am being offered a good deal or not.

dunstonh

If you have two mortgages, or two pensions, or two whatever, the financial advisor will most likely recommend the one that gets them the highest commission.

That is an incorrect assumption much of the time but could apply to some. Its knowing which that is the problem. If you do have concerns over a commission bias then go on fee basis.

I think people are scared of the old sales/spin master coming round and selling them rather than advising them. If you get an "adviser" then you will have no problems. If you get a "seller" then it could be undesirable.

You can reduce your chances of getting a seller by avoiding tied agents (bank advisers for example) and those that operate within a salesforce. The salesforce mentality has done more harm than good to the industry.

As you can see, this forum has lots of threads about endowment misselling, so one suspects that bad experiences in the past may have something to do with it.

And it is worth noting that the FOS published some figures last year that was something like the majority of complaints came from just 15 companies. If you could eliminate those 15 then you have a much stronger chance of getting it right.

The simple thing to do if you have concerns that the advice may be biased or not the best is ask to see the research. With mortgages, that will mean seeing the list of companies that came out top and if the top wasnt chosen, why it wasnt chosen. It could be fees, could be lending criteria etc but it would be recorded and no adviser who is doing the job well will mind going through it. With investment class business ask how the portfolio was built, what strategy was used, ask to see research. If the answers dont come back convincing then walk away as there are plenty out there that are good enough.

Another stat the FSA published last year is that over 80% of advisers currently authorised have never had a complaint. A lot of these issues (endowments and pensions before that) are legacy issues for things done at a time when there was less or no regulation. Some companies had also underestimated the claims society that we are now in and didnt see the need to document things correctly and didnt see the consequences of their advice. They do now.

arkie

Are people scared of IFA 's and Mortgage Advisers? most people are not scared, they actually come to see us, the people who post on here with their income details seem to want to take the biggest financial decision of their life themselves with as little help as possible, which is crazy, another reason why they do this. is they cannot bear to think somebody is earning commission/money out of them and they dont like it ( probably doesnt stop them shopping at tesco's)I cant understand why they dont come to us IFA's and Mortgage Advisers we have liabilty insurance incase of bad advice, going direct to the lender or an execution only mortgage adviser you have no cover, so taking your own advice and not getting a proper IFA/Mortgage broker could prove quite costly.

toonfish

If you don't trust your adviser the best thing to do is look for another one.

Some folk do just begrudge someone else making a living though and see the procuration fees and commissions as excessive.

Product/Commission bias is unlikely except in the adverse mortgage market where fees can vary enormously - for most mainstream stuff there's little to choose between the companies and any recommendation should be justified.

EdInvestor

Some folk ... see the procuration fees and commissions as excessive.

And on some products they are ( not mortgages on the whole). Have a look at the fees you pay on investment bonds and pensions:

https://www.fsa.gov.uk/tables

Obviously this doesn;t all go to advisors, but is it appropriate to pay as much as a third of your total fund in charges and fees over 25 years? I don't think so and many others agree, hence the rapid growth of discount brokers.

AMO

I think that there is currently a problem with pensions. I am not an FSA and I can't find out the exact specifics, but I don't like it. I am finding that many pensions advisors are more happy to deal with those that have pensions rather than new pensions.

I believe that the reason may be because they get a percentage of the existing pot as it is re-invested.

Because the government have introduced stakeholder pensions, IFAs have been recommending that if you earn more than £28K to look outside of stakeholders as you pay for what you get.

Once you start looking outside the protection of stakeholder pensions with regards to charging, they recommend different types of pensions that are actively managed - all your funds are moved around actively on a day by day basis rather than reviewed once a year.

However, this comes with investment charges. They only allow people with a reasonably large pot to move into these funds and charge an additional 5% investment charge as your money goes to buy units.

If you imagine a pot of £50K or more, 5% is quite a killer percentage. I am not sure how much the IFA gets (I believe its 2%, i.e. 40% of the 5%), but certainly this means that to make up the loss, you'd have to have several months/year contribution.

Basically, IFAs for the most part encourage money to move around - each time it does so, it means ch-ching, more money for them.

I've never met an IFA that was poor, or doing okay. They're all 1/2 million or 2nd house people.

I appreciate that people need to earn a living, but in many cases IFAs will not tell you how much they get. And yes, even if it's fee based, they will drive the fees to the cost of the highest commission, so there's no joy there.

80% of IFAs have a good record. This is because people do not know how to measure whether they got a good service unless something goes drastically horribly wrong.

Your IFA may have chosen a mortgage that just means you'll pay a bit more in interest or arrangement fee so that they get a higher commission but with no other will effect. How is Joe Bloggs going to be able to go about checking this to compare. It gets a LOT more difficult with pensions.

AMO

toonfish

AMO wrote:

I appreciate that people need to earn a living, but in many cases IFAs will not tell you how much they get.


AMO

they will tell you exactly how much they get, and if they are not moving funds from time to time then you aren't getting much of a service surely?

I don't have 1/2 million or a second house yet.