MSE News: Beware financial adviser 'Ferrari' salesmen: Guest comment

Former_MSE_Jamie

"A shake-up in financial advice begins next week aimed at protecting consumers but some advisers question if it'll work "

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Beware financial adviser 'Ferrari' salesmen: Guest comment

dunstonh

Be careful of the adviser who encourages you to take his agreed fee via a product. That's because, guess what, they'll need to sell you a product whether it's right for you or not — not so unbiased after all.

That is wrong. The fee needs to be agreed in advance and will be the same irrespective of payment method or provider or even if a product is utilised or not. The facility to pay the fee via the product is little different to say paying by cheque or debit card. In many cases, taking the fee via the product is more tax efficient (e.g. on pensions as you can get tax relief against the fee) or more convenient for tax calculations.

e.g. you agree a fee of £750 with the adviser for the advice.
If you dont buy a product, the fee is £750
If you do buy a product the fee is £750
If you pay by cheque it is £750
If you pay by debit card it is £750
If you pay via the product it is £750

Where is the bias you suggest?

For example, the older generation, some of whom are vulnerable, may find it more reassuring to turn to someone accredited by the Society of Later Life Advisers — although that's no guarantee of a good adviser.

The problem with a number of these "bodies" is that they want the adviser to pay an annual fee to use their accreditation but do nothing to check the ability or knowledge of the adviser. It is little more than a yellow pages style advert and marketing.

It should also be noted that whilst the RDR begins on 1st January, many have been working to RDR principles for many years now and most investment and pension products have been explicitly charged for many years. Most providers are not creating new products for RDR but just changing the words on their existing contracts to use RDR language. I still suggest that the biggest change is the platform review which is looking more likely to happen in 2014.

I'm surprised the article didnt cover what appears to be one of the main areas affecting advice. Restricted and IFA. With the IFA classification opening up to a wider spread of areas to cover with no restrictions allowed (except in very few areas) and many advisers moving to restricted advice (which is usually linked to a restricted products with incentives thrown into the package). Whilst there has been tied agent and IFA before, the differences are now greater than ever and if you have to pay a fee for both, then why would you go with a restricted adviser?

cepheus

So have trail commissions been abolished yet. If not surely there may be a tendency to be biased towards products which offer this?

dunstonh

So have trail commissions been abolished yet.

Yes. Most platforms and fund houses went RDR compliant between November and mid December.

If not surely there may be a tendency to be biased towards products which offer this?

There is no longer any bias (whether real or perceived) on investment type. You agree the service with your adviser and the cost of that service and that is what you pay irrespective of provider used or investments used.

jimjames

cepheus wrote: »

So have trail commissions been abolished yet.

dunstonh wrote: »

Yes. Most platforms and fund houses went RDR compliant between November and mid December.

Although that is possibly true for new investments, trail commission hasn't actually been abolished for existing investments and either the adviser or the investor (as a rebate) will get their trail commission on current investments for the foreseeable future.

missile

It will take more than this "shake up" to protect consumers from the spivs in suits.

cepheus

I suppose there may be a temptation to sell policies with on-going fees such as this:

Advisers can still charge you a regular fee if they are really giving you an ongoing service – for example, if they are reviewing your investments every year and making suggestions that could help you get a better return. They can also make a regular charge if the product they recommend is a regular payment one such as a life policy with monthly premiums.

or offer an ‘information only’ service where no fee is charged.

This is called selling on a ‘non-advised’ basis, and while it might appear that you’re getting advice (because you will be talked through the key features of different products) the ‘adviser’ will not carry out a fact find to assess your personal circumstances, goals and needs to assess suitability of particular products for you. While this might seem an attractive option because there is no fee, bear in mind that if you buy without advice you have fewer rights of redress if the product turns out to be unsuitable for you or you lose money. Also, remember that when buying direct you will only be talked through the provider’s own products – not products from the whole market.

https://www.moneyadviceservice.org.uk/en/articles/new-rules-for-financial-advisers-from-2013


These loopholes could make the situation worse.

grey_gym_sock

non-advised sales could be the achilles heel in RDR. bizarrely, platforms which don't offer advice will be able to retain hidden trail commissions (which have always been supposed to pay for advice) when advisors won't be able to. this should all be sorted out when the platform review comes in, but it's now more than a year behind RDR. the FSA have made it harder for themselves by failing to ban all hidden commissions at the same time.

doughnutmachine

dunstonh wrote: »

That is wrong. The fee needs to be agreed in advance and will be the same irrespective of payment method or provider or even if a product is utilised or not. The facility to pay the fee via the product is little different to say paying by cheque or debit card. In many cases, taking the fee via the product is more tax efficient (e.g. on pensions as you can get tax relief against the fee) or more convenient for tax calculations.

e.g. you agree a fee of £750 with the adviser for the advice.
If you dont buy a product, the fee is £750
If you do buy a product the fee is £750
If you pay by cheque it is £750
If you pay by debit card it is £750
If you pay via the product it is £750

Where is the bias you suggest?

last month a financial adviser phoned me up wanting to arrange a meeting to discuss my finances. he said the advice was "free" because he got his cut from the company that i bought the investments from.

i'd assume he would recommend an investment that paid the highest fee to him.....

Pincher

They are just going to take backhanders in some other way.

1. Prizes "not related to individual sales", but reward for "volume" of business.

2. Lottery tickets in rigged open to members only draws, e.g. win a car.

3. Gifts from toasters to holidays.

4. Cash or payment to offshore accounts.

5. High Class Escorts in Las Vegas.

All they have to do is con old ladies out of their retirement money.

Nobody goes to jail, so they just keep going until they get struck off, and then switch career into pushing Pay Day Loans instead.

dunstonh

doughnutmachine wrote: »

last month a financial adviser phoned me up wanting to arrange a meeting to discuss my finances. he said the advice was "free" because he got his cut from the company that i bought the investments from.

i'd assume he would recommend an investment that paid the highest fee to him.....

As an FA he would be tied to the range he has available and not have the ability to pick from the marketplace.

I'm surprised you got a phone call as most regulated financial services companies do not cold call. It tends only to be scams or non-regulated schemes.