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edited 30 November -1 at 1:00AM in Savings & Investments
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Former_MSE_HelenFormer_MSE_Helen
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edited 30 November -1 at 1:00AM in Savings & Investments
This is the discussion thread for the following MSE News Story:

"The way you pay for financial advice is set to dramatically change. Linda Woodall, from the FSA, explains..."
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  • dunstonhdunstonh Forumite
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    I don't think it is going to dramatically change. Most contracts have been moving to fee basis over the last 5-10 years. Not many actually pay commission any more (commission as defined by a payment by the provider that does not match the charges taken). Most are explicitly charged with the adviser being paid exactly what the charge is with no commission factoring involved. There are still some exceptions and they will go but for investments, the bulk are explicit.

    The main difference is that natural trail will be gone. However, explicit trail will be fine. The adviser will have to state their fees and what you get from them. So, you will be able to hold them to do what they said they would do (currently natural trail is officially part of the initial advice although many do use it to pay for ongoing services).

    What it should do is stop transactional advice from getting ongoing fees (unless the fee for initial advice is taken over a period - such as on regular contributions). it will also mean everyone signs a fee agreement at the start saying how much it costs and what they get. So, this should prevent the greedy sorts taking large amounts on large investments. For small amounts, there wont be the ability to cross subside those as they currently are. So, charges are expected to rise for small investors (due to the coming down in larger investors). mid sized investments will likely see little difference.

    There is more admin and more requirements but as we have been moving closer and closer to RDR, the changes have been implemented gradually and have been adopted by most and it wont suddenly be a dramatic change unless you deal with a firm that has had it's head buried in the sand or you deal with someone that is holding on to the end of the year doing things the old way with no intention to continue post RDR.

    I think the platform review and move to clean share classes will have a bigger impact on the investment world than RDR.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • gadgetmindgadgetmind Forumite
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    dunstonh wrote: »
    I think the platform review and move to clean share classes will have a bigger impact on the investment world than RDR.

    Yes, it is going to be interesting to see what happens there. I'm slowly moving all of our investments to platforms with fixed annual fees, so I'm not expecting any major shake-up, but I guess I need to wait and see.
    I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.

    Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.
  • edited 5 April 2012 at 12:30PM
    angryofacaciavenueangryofacaciavenue Forumite
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    edited 5 April 2012 at 12:30PM
    One of your IFA posters says that costs will increase for smaller investors. This will surely drive them away from seeking independent financial advice, perhaps into the hands of banks that have a less than good track record in this area.

    With regard to platforms. Yes thay have low charges for regular investors, but for a small investor making a 'one off' investment they will be paying additional administration charges for a service they will never get the full benefit of.

    It looks as if the whole charging structure will become even more confusing for 'ordinary' people to understand. We understand advisors are not doing it for free, they have to eat after all, but as long as their commission is clearly explained at the outset and they do as agreed where is the problem ?

    I am also concerned about an area that has not been mentioned. Advisers used to be 'tied' or 'independent' , or the dubious 'multi tied' now we will have' basic', 'simplified', 'restricted', 'unrestricted' and this is progress. Who thought this up ? This is not progress and not helpful for people looking for help with complicated matters which people can find confusing and has serious consequences when it goes wrong.
  • RollinghomeRollinghome Forumite
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    If nothing else, it should begin to make people aware that having a chat and buying investments through an adviser isn't free.

    I recently spoke to a friend who hadn't realised that the IFA he hadn't seen for a couple of years was still earning about £20 a week from him in trail commission payment. The IFA was his brother-in-law. When he got a phone call from him asking if he was still happy with his investments he thought it was an act of family kindness. He may not get a Xmas card this year.

    It may depend on how successful dodgier advisers are at concealing fees. When the friend I referred to in this post got the list of recommendations from his IFA, he had "forgotten" to include the key facts document that gave details of commission. After asking for it he found the initial commission of 3% on the ISA and 4.5% on the bonds plus 0.9% trail commission would have cost him an initial fee of £20,000 and about £5000 a year thereafter. I assume they try it because they often get away with it.

    The more that people realise that they are paying a tidy sum for a service then they'll take more interest in what they pay and demand decent cost-effective on-going service in return - which is often lacking.

    The other important feature of the RDR will be the increased qualifications required. It's absurd that the majority of IFAs have had no more than a level 3 vocational certificate, the same level as the City and Guilds in hairdressing held by my barber.

    For those who don't use advisers it's going to be how the platforms and fund managers react that's most interesting. Certainly there'll be more transparency and less confusion over why certain very mediocre funds are so highly recommended by Mr Hargreaves.
  • edited 5 April 2012 at 12:44PM
    RollinghomeRollinghome Forumite
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    edited 5 April 2012 at 12:44PM
    One of your IFA posters says that costs will increase for smaller investors.
    Unfortunately, the majority of commission-based IFAs have done all they can to forestall the RDR including making much of their apparent concern for small investors.

    IFAs don't deal with clients without enough funds to make it worth their while now and I don't expect that to change. If they could sell someone an investment for £250 of commission then they'll sell them an investment for £250 of fees.

    The intended difference being that the client is made fully aware that he isn't getting anything for free.
    With regard to platforms. Yes thay have low charges for regular investors, but for a small investor making a 'one off' investment they will be paying additional administration charges for a service they will never get the full benefit of.
    Who will? Are you a commission-based adviser by any chance posting for the first time ?
  • edited 5 April 2012 at 1:01PM
    angryofacaciavenueangryofacaciavenue Forumite
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    edited 5 April 2012 at 1:01PM
    I can see you are someone who has a real dislike of IFAs. No actually I am not a commission based adviser but I do know a few IFAs who are actually decent people. Thank you.( I can see you are angrier than me about this issue and suggest you bought something dodgy in the past, probabaly because of greed, and have issues :))

    If IFA's only want to deal with larger investors who, as you say, make it worth their while. Where is a someone with more modest means meant to go ? Financial advice, like the legal business, has it's own language and internet chat rooms appear to be doninated by people like the bloke down the pub who are always full of advice, or strong opinions about issues one way or another. This is not helpful.

    I don't think anyone is stupid enough to think they are getting anything for free. I have purchased products and it is clearly laid out on paper when you sign up.

    With regard to platform charges I suggest you go and read the charges section of a few platforms on line and actually look at how their charges are structured. 'Platform fees' 'administration fee''portfolio fees', they advertise no initial charge but just claw it back via another route. Long term these don't look any better, and I don't get any advice either on the many funds out there to choose.
  • dunstonhdunstonh Forumite
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    One of your IFA posters says that costs will increase for smaller investors. This will surely drive them away from seeking independent financial advice, perhaps into the hands of banks that have a less than good track record in this area.

    Even the FSA acknowledge that.
    With regard to platforms. Yes thay have low charges for regular investors, but for a small investor making a 'one off' investment they will be paying additional administration charges for a service they will never get the full benefit of.

    That largely depends on the platform being used. Remember that going direct to fund house is the default charge effectively and presently typically the most expensive option (bundled platforms at worst equal it on costs but are usually cheaper). Unbundled platforms could well end up more expensive for some groups of people.
    It looks as if the whole charging structure will become even more confusing for 'ordinary' people to understand. We understand advisors are not doing it for free, they have to eat after all, but as long as their commission is clearly explained at the outset and they do as agreed where is the problem ?

    I have mixed views on this. On the one hand transparency is good but on the other, it does make it more complicated and largely ends up with the same result. e.g. old option says 1.5% total whereas new world would be 0.5% here, 0.5% there and 0.5% over there. It still makes 1.5% total.

    When you buy food from the supermarket, you dont get a breakdown of who is getting paid what out the money you pay or indeed in any other retail distribution channel.
    I am also concerned about an area that has not been mentioned. Advisers used to be 'tied' or 'independent' , or the dubious 'multi tied' now we will have' basic', 'simplified', 'restricted', 'unrestricted' and this is progress. Who thought this up ? This is not progress and not helpful for people looking for help with complicated matters which people can find confusing and has serious consequences when it goes wrong.

    It is nearly as "clear" as the FSA definitions for mortgage advisers where whole of market does not mean whole of market and where independent is more whole of market than whole of market..... The FSA really need someone to look at what titles actually mean and make them understandable. Whilst they are at it they should prevent the word "adviser" being used in any customer/client role unless that person actually is an adviser. God knows how many times we see people saying they spoke to an adviser but in reality they spoke to a clerk. The banks, in particular, over use the word "adviser" (and manager) to give a different impression.

    There are an awful lot of flaws with the RDR. There are some positives as well. The most frustrating thing is that the FSA knows it is flawed as it's own review said it was. yet they didnt want to change it because it would make them look bad.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • RollinghomeRollinghome Forumite
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    I can see you are someone who has a real dislike of IFAs. No actually I am not a commission based adviser but I do know a few IFAs who are actually decent people. Thank you.( I can see you are angrier than me about this issue and suggest you bought something dodgy in the past, probabaly because of greed, and have issues )

    If IFA's only want to deal with larger investors who, as you say, make it worth their while. Where is a someone with more modest means meant to go ? Financial advice, like the legal business, has it's own language and internet chat rooms appear to be doninated by people like the bloke down the pub who are always full of advice, or strong opinions about issues one way or another. This is not helpful.

    I don't think anyone is stupid enough to think they are getting anything for free. I have purchased products and it is clearly laid out on paper when you sign up.

    With regard to platform charges I suggest you go and read the charges section of a few platforms on line and actually look at how their charges are structured. 'Platform fees' 'administration fee''portfolio fees', they advertise no initial charge but just claw it back via another route. Long term these don't look any better, and I don't get any advice either on the many funds out there to choose.

    No I have never bought a dodgy investment thank you and apart from using stockbrokers on an advisory basis in the past I’ve always managed my own investments and done so very successfully.

    Quite why you should be so angry in Acacia Avenue hasn’t been made clear.

    When you say that commission payments are made clear, that depends on whether you know where to look. I have the documents my friend was given when he sought advice. 140 pages in all, some of it fairly technical and the IFA had “forgotten” to include the bit that set out his commission payments.

    Surveys show that a high proportion of clients are totally unaware of the ongoing commission they pay as Paul Lewis of BBC Moneybox recently pointed out. He also makes the justified claim on his website that sales commission is the cancer at the heart of all financial mis-selling.

    The real question is whether the reputation of decent IFAs should be damaged by the many bad ones and whether investments should be sold on commission like double-glazing or kitchens. The vast majority of IFAs to date have been ex-salesmen of one kind or another with minimal qualifications. The ones I’ve dealt with have been former insurance salemen, double-glazing and car salesmen, and one ex taxi driver. If people are to get decent advice then that needs to change and there be a reasonable level of qualification.

    Greater transparency on charges can only be a good thing and decent IFAs who are able to provide a cost-effective service will have nothing to fear.

    If you really find investment so confusing I’d be happy to suggest a few books you could read. Most people on this board would be able to tell you where you could buy investments free of any commission or additional fees. But it’s your money to blow as you choose.
  • scotsbobscotsbob Forumite
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    The other important feature of the RDR will be the increased qualifications required. It's absurd that the majority of IFAs have had no more than a level 3 vocational certificate, the same level as the City and Guilds in hairdressing held by my barber.

    You got that one right.

    Always makes me chuckle when these salesmen (I refuse to call them advisers) boast about how they are well qualified to sell their products and tell us no one else is qualified to suggest products or strategies. Fact is their qualifications are eqivalent to junior school tests.
  • AegisAegis Forumite
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    scotsbob wrote: »
    You got that one right.

    Always makes me chuckle when these salesmen (I refuse to call them advisers) boast about how they are well qualified to sell their products and tell us no one else is qualified to suggest products or strategies. Fact is their qualifications are eqivalent to junior school tests.
    Sorry, but even the level 3 qualifications weren't equivalent to junior school tests. They were equal in difficulty to A-levels, something many people never get around to.

    The diploma level qualifications (QCF level 4) are the new minimum and represent the same standard as a first year degree. The advanced diploma is level 6, the equivalent in difficulty of a bachelors degree.

    Now, I'll agree that the certificate level qualifications were too low down the difficulty scale to demonstrate the ability to carry out complex financial planning, and think that all advisers should ultimately aim for level 6 status if they want to adviser on difficult cases. However, to dismiss all of the qualifications as junior school equivalents is just not accurate.
    I am an Independent Financial Adviser
    Anything I say on the forum is for discussion purposes only and should not be construed as personal financial advice. It is vitally important to do your own research before acting on information gathered from any users on this forum.
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