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

magpiecottage

dunstonh wrote: »

Probably as it was unrelated to this thread topic, no indication of any problem and you didnt ask a question.

I think he is upset that the IFA got £250 commission for an investment of £15K and he only got £15,350 back. (He has incorrectly called the £350 "interest").

However, investment performance is, as you say, not relevant. A financial adviser is just that, an adviser. They cannot know what will happen only offer guidance.

One thing that will not change is that investors will remain responsible for their own informed decisions - even if, with hindsight, they come to regret it.

However, with commission banned and advice paid for a several changes are likely


The first is that the fee is likely to be a combination of work done and risk to the adviser (including the risk of complaints). On that basis I would expect Harebell to have paid significantly more than £250 to the adviser - most of my clients would charge around £750 as a minimum.


The second is that the fee is payable even if no product is sold by the adviser. So even if the recommendation had been to put the money on deposit at the bank, a fee of £750 would be payable.


The third is VAT. Under the current HMRC interpretation, if the adviser arranges, say, an investment bond, no VAT will be payable - so you just pay £750.

If, on the other hand, he recommends you put the money in the building society, he must charge you £900 - of which £150 goes straight to HMRC.

magpiecottage

Pincher wrote: »

Nobody goes to jail

Section 11 of the Bribery Act 2010 says they do!

dunstonh

I think he is upset that the IFA got £250 commission for an investment of £15K and he only got £15,350 back. (He has incorrectly called the £350 "interest").

However, investment performance is, as you say, not relevant. A financial adviser is just that, an adviser. They cannot know what will happen only offer guidance.

One thing that will not change is that investors will remain responsible for their own informed decisions - even if, with hindsight, they come to regret it.

However, with commission banned and advice paid for a several changes are likely

My guess is that it is a structured product (5.5 year term and maturity being the reasons). £250 commission pre RDR would probably equate to £500-£1000 fee post RDR (£750 sounds reasonable). So, he got it cheap thanks to cross subsidy.

Another thing that will not change is that investment returns will still be unknown and how the adviser is paid is not going to change that.

missile

dunstonh wrote: »

... Another thing that will not change is that investment returns will still be unknown and how the adviser is paid is not going to change that.

As I understand it the only thing that will change is most IFAs fees will be transparent which is a good. However, it will not reduce the cost and I have a feeling that it will result in higher costs to the smaller investor.

Sadly in the past fees and charges have (in my experience) been glossed over by unscrupulous IFAs.

dunstonh

As I understand it the only thing that will change is most IFAs fees will be transparent which is a good.

Not quite. It is all regulated advisers of any type. It has less impact on IFAs as most were already doing it. Tied agents have seen a signficant impact as it is new for them and many tied salesforces have closed (the banks being the notable ones).

However, it will not reduce the cost and I have a feeling that it will result in higher costs to the smaller investor.

it will reduce charges for larger investors and increase them for smaller.

Sadly in the past fees and charges have (in my experience) been glossed over by unscrupulous IFAs.

Possible but the complaint stats dont back that up and it really depends on what period you are looking at (fees have always been disclosed but commissions didnt always need disclosing - disclosure rules came later).

missile

dunstonh wrote: »

Not quite. It is all regulated advisers of any type. It has less impact on IFAs as most were already doing it.

it will reduce charges for larger investors and increase them for smaller.

Possible but the complaint stats dont back that up and it really depends on what period you are looking at (fees have always been disclosed but commissions didnt always need disclosing - disclosure rules came later).

I believe this has been a recent trend for IFAs, possibly in preparation for this shake up?
That was my view. It seems those who are in most need of protection, will bear the cost of this shake up.
Yes, my experiences do go back to what may be called the bad old days. To be fair, I have no knowledge of any IFA failing to disclose, more a case of glossing over the charges quickly. I believe tail charges were always disclosed somewhere, buried in the documents that few bothered to read and even fewer understood.

doughnutmachine

magpiecottage wrote: »

However, investment performance is, as you say, not relevant. A financial adviser is just that, an adviser. They cannot know what will happen only offer guidance.

One thing that will not change is that investors will remain responsible for their own informed decisions - even if, with hindsight, they come to regret it.

so if someone goes to an IFA and they act upon the advice they receive and this advice is bad it's the customers fault? why does this not fill me with confidence?

so what is the point of going to an IFA?

dunstonh

I believe this has been a recent trend for IFAs, possibly in preparation for this shake up?

About 5-7 years.