IFAs piled into balanced funds to maximise commission - HSBC

gadgetmind

"Analysts at HSBC have suggested the popularity of balanced funds towards the end of 2012 was due to advisers attempting to maximise commission income before the implementation of new rules following the Retail Distribution Review (RDR)."

http://www.ifaonline.co.uk/ifaonline/news/2236245/ifas-piled-into-balanced-funds-to-maximise-commission-hsbc

innovate

surely not

dunstonh

Doesnt seem logical to jump to that assumption. Not unless HSBC are talking about their own in house IFAs where they know the data for their own staff.

I would have thought the more logical reason is the compliance requirements and increased servicing issues under the RDR mean that using portfolio funds/mixed asset funds is more logical for smaller values. I moved significant volumes into mixed asset funds over last year and did not earn a penny on the move above what I was earning under single sector funds. Compliance and suitability post RDR being the key reason. Indeed, the vast majority that I moved ended up lower cost.

RDR increases the likelihood of these funds being used. Not reduce them as the article suggests. If you use single sector funds, there is an expectation of rebalancing and reviews being needed. That is not cost effective on smaller value investments who may have had them in the past but with cross subsidy being much reduced, it is no longer possible to cost effectively do that. So, adjusting the investments to something more suitable for that investor is common sense.

I suspect this is an attack by HSBC because of their own dire track record and their pulling out of advice services for most consumers. RDR and compliance hasnt been a priority for them. So, I guess their understanding of it would be weak. The comments on the article on that site also question HSBCs analysis.

robmatic

gadgetmind wrote: »

"Analysts at HSBC have suggested the popularity of balanced funds towards the end of 2012 was due to advisers attempting to maximise commission income before the implementation of new rules following the Retail Distribution Review (RDR)."

http://www.ifaonline.co.uk/ifaonline/news/2236245/ifas-piled-into-balanced-funds-to-maximise-commission-hsbc

I was contracting at Scottish Widows for a while in 2010/2011 and their business plans built in an expectation of increased 'churn' in the run up to RDR for exactly that type of reason.

Obviously, there's no such thing as commission bias though :money:

dunstonh

robmatic wrote: »

I was contracting at Scottish Widows for a while in 2010/2011 and their business plans built in an expectation of increased 'churn' in the run up to RDR for exactly that type of reason.

Obviously, there's no such thing as commission bias though :money:

Nothing to do with their product range been dated and largely uncompetitive then?

robmatic

dunstonh wrote: »

Nothing to do with their product range been dated and largely uncompetitive then?

Surprising how many IFAs were sending business their way if that is the case (they were expecting inflows and general increased activity).

dunstonh

robmatic wrote: »

Surprising how many IFAs were sending business their way if that is the case (they were expecting inflows and general increased activity).

Whilst the product range is poor (only the retirement account offers anything decent - but can be beaten on features but price can be good with certain terms), the brand is still strong and that can be attractive to some. I used to use them a lot but I don't think I even did one case with them in 2012 and looking at what they have available now, I cant see anything that would appeal.

robmatic

dunstonh wrote: »

Whilst the product range is poor (only the retirement account offers anything decent - but can be beaten on features but price can be good with certain terms), the brand is still strong and that can be attractive to some. I used to use them a lot but I don't think I even did one case with them in 2012 and looking at what they have available now, I cant see anything that would appeal.

I can believe that as you work on a fee basis. This is why over recent years I would have been much more comfortable using an adviser such as yourself rather than a commission-driven adviser.

KFCMike

In 2012 I can't think of many providers that still paid commission. The IFA costs were either taken out of the policy as an adviser charge or paid direct by the client via cheque etc

How were IFAs taking commission on these funds?

And finally, HSBC commenting on commission hungry IFAs...Brilliant!