Are People Scared of Mortgage and Financial Advisers?

dunstonh

I think that there is currently a problem with pensions.

Not really. There is a lot of mis-information out there thanks to media coverage and the Govt changing the rules and U-turning 8 months later. it is also a very much misunderstood area.

I am not an FSA

Good. The Financial Services Authority is unlikely to contribute to any forum

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.

Tied agents can rarely deal with existing pensions. IFAs can and have been encouraged by the FSA to get people out of old legacy plans which are obsolete by modern standards. For basic rate taxpayers, the benefits of pension contributions are limited and ISAs are often better. The FSA even published an Occassional Paper to tell IFAs how to do it and when to do it.

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.

I'm not sure where you get the 28k from but anyone that wants an investment portfolio should be looking at personal pensions or SIPPs. Stakeholders are a budget option for people that dont care about the investments (which ironically is the most important part)

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.

There is no difference. The fund range and accessibility to higher quality investments is the only thing.

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.

Most have no initial charges nowadays and only SIPPs/hybrid SIPPs/fund supermarket pensions may incur an initial charge (although a couple of low quality products are available).

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

Fund switches in pensions are usually done on a bid/bid basis and no charge for doing so and the IFAs do not get a penny from it unless a fee is agreed for doing so.

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.

No they dont. The FSA have stated that fees have to be reasonable for the transaction and cannot match the commission that would be payable. Illustrations on all regulated products include a commission disclosure.

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.

IFA authorisation does not cover mortgages. It is investment class only. It is possible to have IFA and mortgage class authorisation but being an IFA doesnt mean you can do mortgages.

No offence AMO but there is a lot of incorrect information in your post.

arkie

"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"

rubbish, you know absolutley nothing about my job, its like me talking about working in mcdonalds , making fleeting statements, when I know nothing about it,

Most people who make them silly statements like AMO, know nothing. They only know what you overhear in a pub/workplace etc.
I as an adviser have to prove that the mortgage you have taken out meets your needs and demands, this is checked by 2 different qualified independant people, and then if 10yrs down the line the government changes the rules I could get sued,
Before making statements , get them right AMO

sometimes a little knowledge is dangerous.

AMO

toonfish wrote:

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.

Sorry - I'm a little bitter on some of the things I've seen. Moving funds is fine. Most pensions simply stop investing in one fund and start invest in another when you ask to change funds. Existing funds only move if drastic action is required.

However, search the internet. There are so many 'specialist' companies out there that 'specialise' in moving whole pensions. In some cases, this works out to the benefit of the consumer, but in many cases, people's pensions are moved just for the sake of it because money can easily be earnt whenever it moves.

The IFA will argue using figured that you get slightly better returns and that there are no leaving fees and try to sidestep the fact that there are huge reinvestment fees especially when recommending a non-stakeholder pension.

AMO

AMO

dunstonh wrote:

No they dont. The FSA have stated that fees have to be reasonable for the transaction and cannot match the commission that would be payable. Illustrations on all regulated products include a commission disclosure.

IFA authorisation does not cover mortgages. It is investment class only. It is possible to have IFA and mortgage class authorisation but being an IFA doesnt mean you can do mortgages.

No offence AMO but there is a lot of incorrect information in your post.

That's fine. In fact, I hope I am not offending genuine advisors out there -like all industries, there's the good ones.....and then theres the others.

I don't pretend to know a lot about financial advisors. However, I know enough about business transactions to see that that many of the finanacial advisors I see today are skilled in sales more than finance.

Highlighting the benefits and not mentioning investment charges are pretty standard with financial advisors these days. They hope you sign without looking too closely at the terms they draw up.

How many financial advisors state what commissions are available to them for each of the pensions in their portfolio? How many talk about trail fees and investment charges?

Whilst your responding to this thread, answer this one. I had a company recommend I move funds out of Standard Life into an actively managed fund. Yes, great, the projections looked like the returns were fantastic. However, what I want to know is:
1) Are the projected graphs based on the gross contribution so that it takes into consideration all the charges, investment and management?
2) Do the financial advisor perform a comparison based on growth comparing an existing pension with the new one but taking into account that you'd lose 5% through reinvestment charges as well as the cost of the new pension?

Certainly the answer is 'no' to option 2). Because they may only show illustrations based on a new pension, it does not highlight the fact that it may be costly to the consumer if an existing pension is moved.

Anyway, as I've said before, I am no pension expert, but I deal with people a lot and many pension advisors have a strong emphasis on sales than advice.

AMO

AMO

arkie wrote:

rubbish, you know absolutley nothing about my job, its like me talking about working in mcdonalds , making fleeting statements, when I know nothing about it,

Most people who make them silly statements like AMO, know nothing. They only know what you overhear in a pub/workplace etc.
I as an adviser have to prove that the mortgage you have taken out meets your needs and demands, this is checked by 2 different qualified independant people, and then if 10yrs down the line the government changes the rules I could get sued,
Before making statements , get them right AMO

sometimes a little knowledge is dangerous.

Arkie, I am not saying I know a lot about your job. It is a profession that requires a great deal of skill.

What I am highlighting is why people do not trust financial advisors and that is me included.

However, with most industries, if you want to buy something, people can find out enough information through friends and the internet to know if they've got a good deal.

However, the world of pensions (possibly less so with mortgages) is a dangerous area and often open to abuse because it cannot be traced.

Let me put it a different way. If you had three pensions and you recommended one pension to a client. What chance has he got of suing you and saying that you've missold him a pension. For him to do that, he'd have to be pretty much more of an expert than yourself.

Furthermore, if you really upheld the trust value, why is it that pension commissions, charges and trail / exit fees are not the most focused part of pensions advice so that trust from impartial advice is gained?

Tell me that.

AMO

dunstonh

1) Are the projected graphs based on the gross contribution so that it takes into consideration all the charges, investment and management?

Illustrations have to comply with FSA rules which state that charges are included. The exception would be fees where you are paying directly either by cheque or standing order to the advising firm (which is a minority). Where fees are taken on a contract, they are included in the illustration.

2) Do the financial advisor perform a comparison based on growth comparing an existing pension with the new one but taking into account that you'd lose 5% through reinvestment charges as well as the cost of the new pension?

If there are transfer penalties, then the contracts have to be compared with all these charges included. So, contract 2 would be based on the lower transfer value received but contract 1 would be based on the higher value.

Certainly the answer is 'no' to option 2). Because they may only show illustrations based on a new pension, it does not highlight the fact that it may be costly to the consumer if an existing pension is moved.

The answer is yes. The illustration on the new pension is worked from the transfer value not the current value.

You are working on too many incorrect assumptions.

Anyway, as I've said before, I am no pension expert, but I deal with people a lot and many pension advisors have a strong emphasis on sales than advice.

I am. I have transferred over 500 pensions in the last 4 years worth around £9 million pounds. I can do pension transfers with my eyes closed and in each and I have earned a small fortune out of it. In each and every case, the client is financially better off for doing so and none of them care in the slightest what I earned out of it. Some of them had penalties running into the tens of thousands of pounds as well.

You cannot just switch a pension from one provider to another on a whim. There has to be a good reason for it and the charges are a key consideration.

Furthermore, if you really upheld the trust value, why is it that pension commissions, charges and trail / exit fees are not the most focused part of pensions advice so that trust from impartial advice is gained?

commission isnt the most important thing. The suitability of the product and investment is, followed by the charges that the individual pays.

If commission was the priority, then there would be such a mess. For example, I get top rates on commission due to level of business and network membership. So, on one contract, an IFA could earn 4% and a different IFA could earn 6%. However, the charges and contract are identical. If IFA2 earning 6% rebated 1%, he would still get 1% more commission than IFA1 and the client would have lower charges.

If you look at commission paid as the priority, you would pick IFA1 even though you would pay higher charges for doing so. The important thing is charges. Not commission.

If you go shopping for a washing machine do you ask how much each shop makes out of the sale or do you look at how much it is costing you?

AMO

dunstonh wrote:

If you go shopping for a washing machine do you ask how much each shop makes out of the sale or do you look at how much it is costing you?

No, but for commodoties you can pretty much compare on the internet or ask friends, hence the need for trust isn't there.

With pensions, people don't know what they are getting and one of the things they need to know is whether the financial advisor is making judgements based on the size of commissions.

People don't actually need to know what the commission is, they need to know without doubt that decisions are not based on commission sizes though.

In reality, they probably are. Even when choosing one out of the 3 best on offer from a financial advisor, they probably are commission driven.

In the past, most pensions were based on a percentage of salary - it was defined. These days, most people have to take responsibility for their own pensions and therefore the individual is burdened with the risk anyway.

Mortgages in the past have been difficult to apply for without going through a Financial Advisor because the rates direct from a bank's website are sort of like the RRP (recommended retail price) and unless you go through to an affiliate website like thisismoney or a financial advisor, you couldn't get really good rates. This is changing now with companies like ING direct.

But with pensions, this is not so (or if is possible, its not very easy). Most companies won't deal with you unless you have been given financial advice. However, that financial advice can often lead you back to that company anyway.

Financial Advisors do not take any kind of hit if their advice is poor. Often to reduce risk a variety of funds is chosen, so there seldom a scenario that a financial advisor can be tied to bad choice of pension recommendation.

The majority of pension advisors move on because in today's world, people (both advisor and client) move about, they change, so its not exactly like they are doing a lot to look after a client's pension.

So, the risk is high for a consumer. You're paying for a pension and its trail fees which the consumer is stuck with unless they switch pensions (only for good reason of course) and in reality the benefits they gain are few to justify the cost of setting up and maintaining the pension.

There is a lot of shock/horror stories about pensions not doing well, so again pension advisors come in again, to move the pensions and restart the charging all over again.

Yes, they'll be better off because yesterday's extortionate charging is now today's moderate charging, but how much value does the consumer get. Do they get enough to be able to say that they trust their financial advisors?

You say yourself that you make a small fortune out of moving people's pensions. I don't doubt that you do a good job. But that doesn't take away from the fact that people do not trust pension advisors until they are about to retire and know that their money is safe.

It's not good to not know what you're paying for when you get a pension advisor. It's not good to not know whether they are acting in your best interested. And its not good to know that if they made an incorrect judgement, another like them is what you have to turn to.

AMO

dunstonh

People don't actually need to know what the commission is, they need to know without doubt that decisions are not based on commission sizes though.

If they are that paranoid about it, then they can pay fees instead.

Financial Advisors do not take any kind of hit if their advice is poor. Often to reduce risk a variety of funds is chosen, so there seldom a scenario that a financial advisor can be tied to bad choice of pension recommendation.

If advice is poor, the person complains and the adviser could be paying the redress out of their own pocket if complaint upheld.

If you are talking about investment returns then no-one has a crystal ball but that is why you build portfolios to match the risk profile. An adviser being paid trail or on retention finds their income goes up or down with the performance of the portfolio.

The majority of pension advisors move on because in today's world, people (both advisor and client) move about, they change, so its not exactly like they are doing a lot to look after a client's pension.

This possibly explains your cynical views. You arent dealing with "independent" independent financial advisers. They rarely move on as they own their own business or are the partners/directors. You are describing salesforces (either tied or independent) where turnover is much higher.

So, the risk is high for a consumer. You're paying for a pension and its trail fees which the consumer is stuck with unless they switch pensions (only for good reason of course) and in reality the benefits they gain are few to justify the cost of setting up and maintaining the pension.

Modern pensions dont have costs of setting up. Transferring them is easy. Also, where there are trail commissions being paid, you can appoint a new adviser if you dont like the old one and he/she will get them instead.

There is a lot of shock/horror stories about pensions not doing well, so again pension advisors come in again, to move the pensions and restart the charging all over again.

Stories? media scare stories about schemes which have nothing to do with most personal or stakeholder pensions?

Modern pensions are mostly based with no inital charges but only annual management charges so there is no "restarting" of fees.

You say yourself that you make a small fortune out of moving people's pensions. I don't doubt that you do a good job. But that doesn't take away from the fact that people do not trust pension advisors until they are about to retire and know that their money is safe.

I have been advising for 13 years now. In that time I have only come across a handful of cynics who didnt trust me. All of them during my tied agent days probably had good grounds as the tied agent salesforce reputation is quite rightly justified a lot of the time.

Since I have been independent, only one has been cynical and he was full of misinformation and media snippets. But then he had the Daily Mail on his table and that explained it all. He asked me to come out to him and all he wanted to do was show off his [lack of] information. So I told him I didnt want him to be a client. He seemed to think he was doing me a favour and that is no way for a client/adviser relationship to work.

If you get your advice from a salesforce then you should expect lower quality and a sales driven process. If you get your advice from independents (who are also financially liable for advice, unlike the tied reps and salesforce) then you would have a different view.

AMO

dunstonh wrote:

If they are that paranoid about it, then they can pay fees instead.

This possibly explains your cynical views. You arent dealing with "independent" independent financial advisers. They rarely move on as they own their own business or are the partners/directors. You are describing salesforces (either tied or independent) where turnover is much higher.

Modern pensions dont have costs of setting up. Transferring them is easy. Also, where there are trail commissions being paid, you can appoint a new adviser if you dont like the old one and he/she will get them instead.

Modern pensions are mostly based with no inital charges but only annual management charges so there is no "restarting" of fees.

Thanks for the exachange Dunston. I like it when people passionate about their work make a contribution to these threads.

I am not sure if who I have dealt with in the past are independent, but they certainly tell me they are so. Supposedly, they are the largest independants in the U.K.

I guess it depends on what you call a modern pension. This company advised moving out of a stakeholder and investing in an actively managed fund. The pension did not need moving but the advice was that stakeholders were good for those earning less than £28K. The advice was also that an actively managed fund would give better returns (I don't doubt that).

However, as the financial advisor did not pro-actively discuss the cost of moving pensions and just wanted to list the benefits of the new pension it was sufficiently obvious that that person was not one whom I would want to deal with regardless of whether the pension was good or not. I did not like reading investment charges of almost 6% when moving from the stakeholder without it being mentioned only realising it because I happened to take the paperwork home to read before signing.

This was after they had already moved my pension once to Standard Life stakeholder less than 2 years ago.

It seemed to me, that the lucrative charging of personal pensions diminished with new legislation, but by adding new products to the market that weren't stakeholders, the higher charging of 5-6% for investment and 5% annual management charge could be maintained.

But anyway, I've had my grumble for today!

AMO

talksalot81

I certainly wont go to an 'expert' without having read up in depth. On several occasions I have found that the 'expert' does not come up with the greatest suggestions. Take our mortgage advisor - the guy was advising us to borrow an amount which I was absolutely certain to be unserviceable in our current situation.