Potential Financial Adviser Job, Ethical concerns - urgent opinions much appreciated!

Stroot1

Hi there, I'm new here and have been offered a role to become a trainee financial adviser and have been obsessing over some of the ethical implications rather a lot (thus posting at 4am!) Some genuinely honest opinions would be much appreciated, don't just say whatever you think would make me feel good please

I would be working with a client base that falls in to the top 20% wealth bracket, and I expect I'll often be dealing with the top 5%, simply because as you probably know they are usually the ones who both demand and can afford the service. I'm wondering whether I would effectively be marginalizing the rest of society if the mortgage/insurance/pensions/tax deals I provide concentrate wealth further towards the affluent and their heirs, at the expense of the rest of society? Maybe it's not a zero sum game whereby a wealthy individual getting good financial advice is necessarily a bad thing for those lower down? In my head I'm extrapolating it to the point whereby wealthy clients and their heirs being more financially proficient allows them to own more property and provide more property for their kids which could marginalize the "have nots" for example rentiers and those that don't stand to inherit. Building on wealth in other ways too as a result of good advice could seemingly perpetuate inequality further. Of course it's the less suitable mortgage/insurance/pensions companies that would directly miss out on income if my clients weren't offered advice in the first place (maybe a good thing!?) but I'm trying to consider the ripple effects too.

I would be dealing primarily with mortgages but the harder I work the more contacts I will make with clients who would otherwise have not considered financial advice and there is also a wealth management branch these clients could subsequently use. They could benefit from 25% tax relief on pensions that they could well have not have known about for higher rate tax payers for example. This seems a generous tax break compared to the lower tax rates, possibly having a regressive effect on society and they could also plan to mitigate inheritance tax more efficiently. Clearly affluent clients could gain higher wealth through mortgage/insurance advice (at the expense of them not getting advice and that extra money going to a more inefficient provider though so maybe a good thing!?) and also the state could receive less income through clients receiving pensions and tax mitigation advice. I'm not sure whether the wider effects would be more wealth concentrated in the hands of those that already hold a lot of capital and thus a detrimental effect, possibly moving away from some kind of "meritocracy" or whether it's not a zero sum game and I am over-thinking this a lot...

The ripple effects are my main concern and whether mortgage, insurance, pensions and tax advice to such clients has a positive net effect on the common good... or if it serves to marginalize and thus the positives of giving fee-efficient advice and using suitable providers are outweighed by the detriment it causes to society?

I know that's a hugely broad question!....but any thoughts on the matter would be most welcome.

Thank you, Gary.

PeacefulWaters

Oh come on.

You either want to do the job or you want to work for a tree hugging charity.

It's your decision.

Perhaps do it, gain expertise and then set up your own firm for the good of the poorer in society.

jamesd

The first key things to know are that most of the wealth inequality in the UK and other developed countries is due to:

1. Age. Younger people have potential earnings, older people have past earnings and accumulated assets that they will need to rely on for retirement.
2. Location. London and SE or capital city in general vs north of England or Wales. Higher costs of property and living in general meant hat property wealth is concentrated in these areas, with the potential to do well by relocating at retirement. The higher costs mean higher pay just to deal with that effect.
3. Personal habits.

Since you are dealing with the top 20% you'll probably be mostly dealing with the mass affluent people in those broad categories.

Recognising the distribution of wealth and its causes means that to some extent you can relax, knowing that much of the effect is just people accumulating assets ready for retirement.

For background, the household wealth and income in 2012 according to the ONS Wealth and Income, 2010-2012 survey:

25th percentile: wealth £57,000 income £18,000
median: wealth £218,400 income £32,100
75th percentile: wealth £490,900 income £53,500
80th percentile: wealth £587700 income £60,100
90th percentile: wealth £918,100 income £80,700

One interesting aspect is that wealth is more uneven than income. In part that's due to the location effects I expect but it's also where personal habits and attitudes to saving and investing come into play.

TH1878

Gary,

Learn the trade, earn your keep and then make the decision about what you want to do.

We only deal with clients of investable assets of £1m or more so they are definitely in the top 5%. However, I personally do some pro-bono work and try and help people on here where possible so it's not an all or nothing decision.

Cheers

TH1878

dunstonh

I'm wondering whether I would effectively be marginalizing the rest of society if the mortgage/insurance/pensions/tax deals I provide concentrate wealth further towards the affluent and their heirs, at the expense of the rest of society?

I would be more worried passing the exams and getting to a knowledge level that is suitable for higher net worth individuals.

I would be dealing primarily with mortgages but the harder I work the more contacts I will make with clients who would otherwise have not considered financial advice and there is also a wealth management branch these clients could subsequently use.

You are really jumping the gun. You are not qualified. You will only be a mortgage adviser by the sounds of it (and not a financial adviser - not to begin with anyway). So, worry about high net worth clients when they happen.

You mention a wealth management branch which suggests it is not independent/whole of market. Perhaps your ethics should be more focused on that part of it.

The "lower" end is still capable of getting advice cost effectively if they want it. Wait until you get a client bank of high net worth clients first. Then consider what you can do.

princeofpounds

Maybe it's not a zero sum game whereby a wealthy individual getting good financial advice is necessarily a bad thing for those lower down?

Precisely. It's not a zero sum game, not even remotely.


The less money that is burnt in unproductive activities, the more there is available for investment and consumption, which produces GDP that can be taxed and redistributed, and provides employment.


As for regressive tax benefits, frankly it's a totally twisted way to look at pensions. Pensions operate on a very simple principle, which is that of deferred taxation; you are allowed to save tax-free into the vehicle, as long as the income is taxed when it exits the vehicle.


If someone ends up paying less in tax as a result of this, that's entirely because they are poorer (at least in income terms) when they are old than when they are young.


It is income redistribution over time rather than between people; the exact same thing happens indirectly whenever someone has a job, earns money, and then ends up redundant taking benefits.


Criticising that is a bit like stealing half a kitkat from someone, and then calling them a thief when they ask for one finger back.


Given there is a lifetime limit on pension contributions which will now mean you can't even generate an income of 40k from one, and that it's quite likely the higher rates of relief will be removed soon anyway, then you really need to stop worrying about this.


Besides, the system is already vastly redistributive*. The top 10% pay over 50% of the income tax. The picture gets even more extreme if you include VAT, or include the burden of public services to look at net contribution (as the poor take much more public services and in fact over their lives just cost the state money).


That's fine, some redistribution is necessary and probably just too. But refusing someone mortgage advice is a really stupid and inefficient way to redistribute - the 'removed' revenue doesn't even go into tax, just the profits of financial services companies.







* personally I have always thought there is far too much emphasis on income and not enough on wealth when it comes to taxation. The really rich don't even have income anyway, and would appear in the bottom half of this chart. Much more efficient to hold you money in tax havens offshore and borrow using it as collateral; from a UK perspective you have no income and millions in debt! So the redistribution breaks down for the really top earners, the 'real' 1%.

agarnett

What's your background, Gary ?

I mean, what's brought you to the point of applying for a role as a trainee financial advisor?

Have you any previous experience in advising customers about money or property or insurance matters? I assume you do, in that you can surely only have been offered the role if you have such experience, else maybe you seem to have some interesting contacts whom your prospective employer believes you will approach.

I ask because I don't think anyone with a solid education ever aims to be a trainee financial adviser when they grow up - they may however (if needing to find something/anything with prospects) simply find that such jobs or 'opportunities' abound and decide they are worth checking out! Millions have stumbled down the same path for almost three decades now. The few fittest survive to service their HNW client banks (100 trusting clients was always thought to be sufficient to support a financial adviser for life - there's another angle to your zero sum question!). Of course the other side to maintaining client banks is to continue to recruit other trainees in bulk (grist to the mill), who may introduce some good leads but themselves fall by the wayside, and of course to find the time [STRIKE]to pontificate on threads like this[/STRIKE] - sorry - to offer pro-bono advice on threads like this

Obviously all financial advisors aim in their day jobs to handle wealthier clients who can afford the fees. Nothing unusual about that.

I assume you have a reasonable degree which is not a degree in Financial Services! What sort of roles do your peers usually get offered? Not "trainee financial adviser" I expect?

So what's the particular attraction between you and this role, and what sort of people are trying to recruit you and why, do you think ? Hopefully the attraction isn't simply

• that you've been sold on the idea that you will be doing God's work
• that you have been offered it

What's definitely in it for you ? What "training" exactly is on offer ? Are the starting salary and benefits at least as good as those at a major bank for say a personal banker in the City whilst you are training ?

What exams will you be studying for ? Is it mapped out for you ? Will they challenge you ? The financial services industry has never challenged the brightest except in the back-rooms where the City wheezes are dreamed up and computed!

What performance milestones are you expected to meet while on probation ? Are they based on real solid training and exam success, or somehow more connected to new-business / appointment arranging targets ? Have you worked with personal business targets previously ? How fast have they said it will be before you are calling clients or meeting them alone? I recall one major bank a few years ago boasted of "Street To Seat" in eight weeks ! Does your prospective employer do it faster ?

If you are expecting to be "advising" clients from an early stage, how do you square that with what you know about the likelihood that you and they are just being used as grist to the mill?

Will the probationary targets quickly bring you into conflict with your own conscience ?

Do you consider yourself to be a skilled seller ? Why ? Or do you just hope that you might be ?

It is difficult to say much more without knowing a bit about what got you the offer, and what the offer might be exactly i.e. with what kind of outfit, but unless you are talking about a household name, I think you are right to be extremely circumspect.

I accept however that it can be extremely hard to sort wheat from chaff in many job offers if you consider yourself a normal "also ran" type of person at this stage of your career and are looking for a step on a ladder - any ladder that might allow you to build the self-esteem we all crave.

Very best of luck with your chosen direction. I think you are off to a good start by questioning what is put under your nose - but once you make a choice, do try not to question it too much once you are in the role - if you don't like it, try not to make it too obvious and concentrate on using it as a stepping stone to something else, and make any exit gracious and as orderly as possible.

For every financial adviser surviving three years in the role, there are probably a hundred who knew it wasn't really for them inside 3 months and who soon left to do something else entirely. So if you take the role, do first build yourself a Plan B and allow yourself time whilst in it to plan a good exit. If you are in fact a good fit, then don't settle long term for supporting someone else too easily in the name of "gaining more experience". Financial Advisers need their own client banks to progress, and clients buy people first, so if they buy you, you can probably do without having colleagues feeding off you!

Loughton_Monkey

I worked in Financial Services throughout my working life, and consider myself to have honesty and professionalism. I don't like the word "Ethics" as it has a very wide definition and rather too much [for my liking] of a religious connotation.

Your post 'hit my eye' mainly because I was expecting your concerns might surround the competence, relevance, and independence of your 'advice'. However, you seem to suggest discomfort about advising the 'rich' at the expense of the 'poor'.

Were you to be considering a job in some large accountancy firm advising 'fat cats' about the latest ruse to channel income offshore and avoid tax 'aggressiverly', then I could understand it. But this is not the province of normal 'Financial Advice'.



The most frequent 'abuses' of so-called 'ethics' observed throughout my own time (almost none on the sales side) included:

• Salesmen who 'advised' customers to buy products totally unsuitable to them, because they would earn more commission.
• As above, but through other reasons like incompetence, or putting business with a provider because of their lavish 'hospitality'.
• Salesmen who 'led' customers (or accepted from customers) to lie on proposal forms about their health or medical history etc. This tactic either 'defrauds' the company, or totally lets down the customer, or both.
• Companies who try to sell products that are very profitable to themselves, but are therefore far too risky, or poor value, for the customer.

Most of these issues are addressed in most recent industry and government initiatives.

I fail, personally, to see any aspect of financial advice (to the rich) that in any way has a negative effect on the poor. More the reverse.

At the end of the day, therefore, I would suggest you go into the profession, if you wish, and give good, honest, valuable advise to your clients, in good faith, and value them as future customers.

You, yourself, will be getting 'rich' thanks to these rich clients, and if you have any problem with that, then there is no law against giving most of your income to a charity of your choice. It's tax efficient anyway.

Stroot1

Thank you for all your responses, they are much appreciated.

priceofpounds I appreciate your pensions explanation, I do know it is effectively tax deference but have seen many things on how that can be taken advantage of by simply taking a lower wage at the very back end of your career. Also that the relief represents a much higher percentage return than those lower down can expect to achieve when often it isn't even necessary as a means for them to save in to a pension but simply to avoid tax. Either way as you say it may well soon be scrapped. I concur with you about too much emphasis on income and my worry is that without a wealth tax/capital gains being placed on the ridiculous house price inflation we have seen over the years, more "unearned" wealth can be concentrated down through generations. That was where I jumped to helping wealthy people gather more wealth may be detrimental as it concentrates more towards those who already control a lot of capital. Especially if this was invested in property or buy to lets? As this causes stagnation and less consumption/investment if money is tied up in property. I know inherited wealth can lag the economy and have a negative effect in terms of increased inequality. As you say the profits however would be going to financial services companies if advice wasn't given, however despite their higher costs to the wealthy individual I wondered if those profits would be used in a more effective way for the economy (and would have a more re-distributive effect), again the same being with if a wealthy individual wasn't as tax efficient, but would the government use the money in a more effective way that would also have a re-distributive effect. This may be on the realms of highly illogical, so if I am going off on one let me know, it's making sense in my head but might be an overly obsessive train of thought. My main thought was that rather than going to an heir as unearned wealth (which could simply be used as a means to accumulate more wealth faster than economic growth and thus increasing inequality) an entrepreneurial financial services company and government may be able to use that money due to no advice, in a more efficient and equitable way. Your thoughts and anyone's on that ramble would be much appreciated.

Stroot1

dustonh and Loughton, it is for a multi tied firm, however I have already pondered over the ethics of that and do believe that whilst it is not as rounded as independent advice, this company does offer a wide range of products and the adviser I am shadowing has clearly built up a large client base who trust his advice so I do think I would be providing good value for potential clients. dustonh I know I'm jumping the gun a bit but I would like to be sure about the whole zero sum game/marginalization of the "have nots" before going in to the role. My worry with regards to financial advice having a negative effect on the poor/lower middle would be even more wealth concentrated in the hands of a few who can then further grow their wealth and their heirs too with regards to unearned wealth. Especially in terms of property I consider if this could be dangerous as there becomes a landed gentry and rentiers. Maybe you're right that financial advice wouldn't really have an effect on this though? But I do feel there could be a link especially with relation to the wealthy gaining at the expense of society with regards to money not going to the government pot/or even to other financial services firms to reinvest rather than wealthy individuals further accumulating capital (some of which is unearned). If that money is tied up in property too it would seem to have an adverse effect on the rest in society and contribute to an aristocratic move with more and more concentrated in to pots of the wealthy with unearned wealth passed down through generations.

dunstonh

it is for a multi tied firm, however I have already pondered over the ethics of that and do believe that whilst it is not as rounded as independent advice, this company does offer a wide range of products and the adviser I am shadowing has clearly built up a large client base who trust his advice so I do think I would be providing good value for potential clients.

Multi-tied products tend to be more expensive than IFA or whole of market priced products. Personality of the adviser is one thing but seeing as you are focusing on ethics, you would knowingly be advising people that you are not giving best advice. Either in quality of product or pricing of product.

My worry with regards to financial advice having a negative effect on the poor/lower middle would be even more wealth concentrated in the hands of a few who can then further grow their wealth and their heirs too with regards to unearned wealth.

Those with higher net worth generate more tax and, if they are business owners/directors etc then they employ people which generates wealth for others.

Without the wealthy, there would be no social benefits etc as they need to be paid for.

If that money is tied up in property too it would seem to have an adverse effect on the rest in society and contribute to an aristocratic move with more and more concentrated in to pots of the wealthy with unearned wealth passed down through generations.

Apart from London, that is unlikely to be the case. London pricing is on the international market and the fall in sterling saw London buck the trend. Financial advice has nothing to do with that.