Crackdown on IFA commission bias

EdInvestor

IFAs are furious at new proposals from the regulator.

Financial advisers will soon have to justify the title 'independent' after a watchdog today proposed a crackdown on accepting commission from providers.The FSA today announced proposals that mean advisers will only be able to call themselves 'independent' if they provide financial advice in exchange for a fee paid by the customer.

http://www.thisismoney.co.uk/news/article.html?in_article_id=421778&in_page_id=2&ct=5

dunstonh

What made you put IFA in the title when the article title doesnt say that?

IFAs are furious for the following reasons:
1 - IFAs are generally the least commission biased yet its IFAs that are being targetted.
2 - You will be able to use the term independent even if you only offer products from one provider
3 - There will be two advice options. Simple (flow chart style) offer simple products and professional which will be fee based but from those with higher qualifications (higher than most IFAs or any other adviser type has now). Where is the middle ground?
4 - The proposals will decimate IFA numbers and remove the availability of true independent advice from many consumers and allow the banks to cash in the simple advice process.

The irony of all this is that remuneration can still be done by commission as it is now because most investment products nowadays are explicitly charged for IFAs. Its the tied route or minority products where it is less common. Yet it is the IFAs that are doing to be hit and the consumers that depend on IFAs.

Consumers wanting advice will basically have choice of seeing a highly qualified adviser but pay a lot for it or seeing a low qualified adviser offering simplified advice and basic products (read poor investment options like GEBs).

What the FSA should have done is force all commissions to be explicit. After all it doesnt matter what the commission is. Its the charges that matter and if it was explicit, that would be reflected in the charges. That would be more transparant and remove perceived commission bias.

EdInvestor

dunstonh wrote: »

3 - There will be two advice options. Simple (flow chart style) offer simple products and professional which will be fee based but from those with higher qualifications (higher than most IFAs or any other adviser type has now). Where is the middle ground?

I must say the two-tier idea seems to be just asking for trouble. Well-off people who can afford to pay will get proper advice from the best advisors who will need to have high level qualifications.

All the low quality cowboy advisors will be in the 2nd tier, where they can give "simple" advice to mug punters.Like taking candy from a baby really.

Yet it's the mug punters who really need help from the higher quality non-cowboy advisors if they are to avoid being taken for a ride.

The FSA seems to have ducked the issue of transparency and disclosure on charges as well - something that would genuinely be helpful to investors and advisors, as it would remove some misconcpetions about how much advisors are pocketing.

UK007BullDog

EdInvestor wrote: »

All the low quality cowboy advisors will be in the 2nd tier, where they can give "simple" advice to mug punters.Like taking candy from a baby really.

Yet it's the mug punters who really need help from the higher quality non-cowboy advisors if they are to avoid being taken for a ride.

Ahem..... how can you say that the lower tiered advisers are cowboys and there to mug punters? I think that is a bit strong and unwarranted and not fair at all.

Every top adviser was a low tiered one, and as long as the FSA give no clear guidelines to qualifications and requirements there is a risk even when using a top tiered adviser as he might have passed the exams but might not have the knowledge or experience of a lower tiered.

dunstonh

I have spent most of the afternoon speaking with other advisers and reading up on it.

The good news is that consultation is going to go on to the end of this year and then in 2008 they will announce the changes. That will probably give a lead in of 2 years before it happens. Then you have the transitional "general adviser" classification which most current advisers are currently in. We don't know how long that will be but looking at the exam requirements using current qualifications, it could take an adviser more than 5 years to get qualified to chartered standard (290 credits would be needed of which most advisers only currently hold 50. The four advanced modules only carry 30 credits each). However, we don't know what the new standard requirements are and which exams will have equivalents on the new standards so its hard to know whether you should start sitting extra exams now or wait.

Personally, as an NMA IFA I already meet the fee/commission disclosure requirements to retain the independent tag. However, I dont have enough credits to meet current chartered status. Although I dont reckon the the FSA required standard will be as high as that. I believe it will be somewhere in between (there are only about about 1100 chartered level advisers currently to about 30,000 advisers overall).

I do see a problem for the other adviser I employ though. He's much older, in his 50s, and by the time this all comes in (assuming it does) he will have to make a choice to move to chartered status (as majority of firm advisers have to be to be able to use that term) or leave my employment. He will be closer to 60 so will probably call it a day.

IFAs and tied agents that are mostly mortgage advisers are going to be the hardest hit as for as a decision on what they do. If 80% of their business is mortgages, is it worth them sitting advanced exams on areas of business they do little or nothing in. In which case, I can see them dropping investment business.

defender_of_the_weak

A few observations from the far side

Even lower qualified advisers can give good honest advice and do the best for their clients. Sometimes this might involve say 'dont do that its not the best for you see someone else'

Some of the biggest bandits I have ever come across are really clever and understand products/services. No industry or profession can ever be rid of the few bad apples. Please note the word few

Raising the bar has to be good overall as most miselling was based on ignorance not malice.

Did I mention that I was an advanced level trainer and examiner for the CII

Should I go back to being an adviser, given that I think I will meet the new higher level criteria

Tongue firmly in cheek, but as regular readers will know

I couldnt help myself having a two penneth

UK007BullDog

Copy below:

From the CII website:

Q1. What does an individual have to do to be eligible for the title?

A. To be awarded Chartered Financial Planner status, an individual will have to:

* Carry on business as a provider of financial planning advice to individuals or corporate entities
* Have five years' experience in the industry (not necessarily postqualification) of a kind satisfactory to the Institute
* Be a member of the Chartered Insurance Institute (CII)
* Gain CII approved financial qualifications equivalent to first degree level
* Follow the CII's Code of Ethics and Conduct
* Be able to demonstrate at least three years of Continuing Professional Development (CPD) and commit to an ongoing programme of continuing professional development.

Q2. Which CII approved financial qualifications are suitable?

A. An individual will need to hold the Financial Planning Certificate (or equivalent) and a minimum of 290 qualification credits which must include:

Six Advanced Financial Planning Certificate level units; or from 2007, completion of the Advanced Diploma in Financial Planning