When is an independent financial advisor not independent?

Freecall

dunstonh said:

Ok, lets see how honest you are then in this scenario.    You have a business and are retiring.     Three buyers have shown an interest.    The best independent price is £3 million.    SJP offer you £8 million and another national tied salesforce offers you £5 million.      Which would you accept?    

Perhaps not the best example.

Presumably I would accept the SJP offer as, by definition, I would be operating in the financial services industry and would therefore be unable to evaluate the situation in any other way than an opportunity for personal gain.

I expect that if I were such an advisor (I'm not, obviously), I would also check that the regulator did not compel me to let my clients know of my plans  -  just in case I needed to engineer the deal in a particular way.

... which is exactly what SJP appear to have done here.

Quod erat demonstrandum

dunstonh

Presumably I would accept the SJP offer as, by definition, I would be operating in the financial services industry and would therefore be unable to evaluate the situation in any other way than an opportunity for personal gain.

If it helps, replace it with offers on a shop you own.  One continuing your business as it is for the lowest price and another planning to change the business totally and paying you a lot more.

Or if you meant the actual figures, then that is the sort of differences you see with independents taking over vs salesforces/restricted FAs.

I expect that if I were such an advisor (I'm not, obviously), I would also check that the regulator did not compel me to let my clients know of my plans  -  just in case I needed to engineer the deal in a particular way.

Do you know of any business where the happens

I think its clear that I am less than impressed with the way SJP structure the company for takeovers but every single client is free to leave at no cost. 

[Deleted User]

People respond to incentives in all industries. That makes them human. Some people will act better than average but its not surprising the IFA acted in his interest rather than his client’s. 

The problem here is that the interests are misaligned and the regulator did not impose fiduciary duty on the IFA. Also, that the clients of IFAs tend to be a little naive. 

Linton

Deleted_User said:

People respond to incentives in all industries. That makes them human. Some people will act better than average but its not surprising the IFA acted in his interest rather than his client’s. 

The problem here is that the interests are misaligned and the regulator did not impose fiduciary duty on the IFA. Also, that the clients of IFAs tend to be a little naive. 

AIUI An IFA has a duty of care when undertaking his professional role as the provider of financial advice to a customer and can be sued if it can be shown that a failure in that respect led to a financial loss by the customer. That doesnt mean for example that the IFA is not allowed to retire because a client may be dependent on him nor that he cant sell his business to someone else.  Same in principle as a doctor, vet, lawyer, accountant, dentist  etc etc.  This situation is certainly not limited to the financial services industry.

To answer the question posed at the start of this thread - an IFA is only independent when advising the client.

zagfles

Linton said:

Deleted_User said:

People respond to incentives in all industries. That makes them human. Some people will act better than average but its not surprising the IFA acted in his interest rather than his client’s. 

The problem here is that the interests are misaligned and the regulator did not impose fiduciary duty on the IFA. Also, that the clients of IFAs tend to be a little naive. 

AIUI An IFA has a duty of care when undertaking his professional role as the provider of financial advice to a customer and can be sued if it can be shown that a failure in that respect led to a financial loss by the customer. That doesnt mean for example that the IFA is not allowed to retire because a client may be dependent on him nor that he cant sell his business to someone else.  Same in principle as a doctor, vet, lawyer, accountant, dentist  etc etc.  This situation is certainly not limited to the financial services industry.

To answer the question posed at the start of this thread - an IFA is only independent when advising the client.

Well that wins strawman of the thread In fact, a textbook example of what a "strawman" is.

Nobody said or implied an IFA was not allowed to retire. That would be a completely ridiculous thing to suggest, wouldn't it? Yet you chose to point out the blatently obvious fact that an IFA is allowed to retire. Has anyone said otherwise? Equally nobody said an IFA is not allowed to sell his business. Another strawman.

Now, rather than constructing strawmen to knock down, maybe you have something to contribute to the actual point being made. Which is who the IFA sells his business to when he retires. Not whether he's allowed to retire, or whether he's allowed to sell his business.

The issue is whether he sells his business to another IFA, so his clients continue to get IFA service, or sells his business to a restricted adviser which we continually get told by IFAs on here should not be used and the only choice should be IFA or "DIY".

It would be like a doctor selling his business to a homeopath having spent his whole career slating homeopaths and telling people how superior he is to homeopaths.

zagfles

Deleted_User said:

People respond to incentives in all industries. That makes them human. Some people will act better than average but its not surprising the IFA acted in his interest rather than his client’s. 

The problem here is that the interests are misaligned and the regulator did not impose fiduciary duty on the IFA. Also, that the clients of IFAs tend to be a little naive. 

Indeed, and it's not just clients of IFAs, it's other financial services like banks etc. People tend to trust banks, after all they look after their money so they have to have some level of trust in them. So when they recommend that endowment mortgage, that PPI on your loan, when they offer to deal with probate on your close relative's death, people trust them.

[Deleted User]

zagfles said:

Linton said:

Deleted_User said:

People respond to incentives in all industries. That makes them human. Some people will act better than average but its not surprising the IFA acted in his interest rather than his client’s. 

The problem here is that the interests are misaligned and the regulator did not impose fiduciary duty on the IFA. Also, that the clients of IFAs tend to be a little naive. 

AIUI An IFA has a duty of care when undertaking his professional role as the provider of financial advice to a customer and can be sued if it can be shown that a failure in that respect led to a financial loss by the customer. That doesnt mean for example that the IFA is not allowed to retire because a client may be dependent on him nor that he cant sell his business to someone else.  Same in principle as a doctor, vet, lawyer, accountant, dentist  etc etc.  This situation is certainly not limited to the financial services industry.

To answer the question posed at the start of this thread - an IFA is only independent when advising the client.

Well that wins strawman of the thread In fact, a textbook example of what a "strawman" is.

Nobody said or implied an IFA was not allowed to retire. That would be a completely ridiculous thing to suggest, wouldn't it? Yet you chose to point out the blatently obvious fact that an IFA is allowed to retire. Has anyone said otherwise? Equally nobody said an IFA is not allowed to sell his business. Another strawman.

Now, rather than constructing strawmen to knock down, maybe you have something to contribute to the actual point being made. Which is who the IFA sells his business to when he retires. Not whether he's allowed to retire, or whether he's allowed to sell his business.

The issue is whether he sells his business to another IFA, so his clients continue to get IFA service, or sells his business to a restricted adviser which we continually get told by IFAs on here should not be used and the only choice should be IFA or "DIY".

It would be like a doctor selling his business to a homeopath having spent his whole career slating homeopaths and telling people how superior he is to homeopaths.

Very much so.
And furthermore..
Although the popular correlation between Financial Advisers and doctors has been muted during the coronavirus pandemic, it is worth restating that FA's take no Hippocratic Oath.

Don't blame advisers for acting in their own interest - greed is gravity and even the best of them are constrained by their lawyers - blame the people who thought that they could appoint advisers to act as gatekeepers to our fortunes, yet not expect them to act in their own interest. 

Malthusian

zagfles said:

The issue is whether he sells his business to another IFA, so his clients continue to get IFA service, or sells his business to a restricted adviser which we continually get told by IFAs on here should not be used and the only choice should be IFA or "DIY".

The IFA could sell his business to another IFA, passing up 5 million quid in the process if he was dunstonh's imaginary IFA, and a month later the new IFA could go restricted or cash in by joining St James Place, leaving retired IFA's clients in exactly the same position.

In the end, it is out of the retiring IFAs' hands and in the hands of their ex-clients.

It would be like a doctor selling his business to a homeopath having spent his whole career slating homeopaths and telling people how superior he is to homeopaths.

No, it would be like a doctor selling his business to a doctor who charges higher fees and isn't quite as good at his job.

ZingPowZing said:

Although the popular correlation between Financial Advisers and doctors has been muted during the coronavirus pandemic, it is worth restating that FA's take no Hippocratic Oath.

Nor do doctors (not in the UK at any rate).

Both doctors and financial advisers are governed by a regulatory and legal framework that serves the purpose that the Hippocratic Oath did in the 4th century BC.

If you want your IFA to promise not to carry out any abortions, a lot of them will probably oblige if they want to maintain the relationship badly enough.

Linton

zagfles said:

Linton said:

Deleted_User said:

People respond to incentives in all industries. That makes them human. Some people will act better than average but its not surprising the IFA acted in his interest rather than his client’s. 

The problem here is that the interests are misaligned and the regulator did not impose fiduciary duty on the IFA. Also, that the clients of IFAs tend to be a little naive. 

AIUI An IFA has a duty of care when undertaking his professional role as the provider of financial advice to a customer and can be sued if it can be shown that a failure in that respect led to a financial loss by the customer. That doesnt mean for example that the IFA is not allowed to retire because a client may be dependent on him nor that he cant sell his business to someone else.  Same in principle as a doctor, vet, lawyer, accountant, dentist  etc etc.  This situation is certainly not limited to the financial services industry.

To answer the question posed at the start of this thread - an IFA is only independent when advising the client.

Well that wins strawman of the thread In fact, a textbook example of what a "strawman" is.

Nobody said or implied an IFA was not allowed to retire. That would be a completely ridiculous thing to suggest, wouldn't it? Yet you chose to point out the blatently obvious fact that an IFA is allowed to retire. Has anyone said otherwise? Equally nobody said an IFA is not allowed to sell his business. Another strawman.

Now, rather than constructing strawmen to knock down, maybe you have something to contribute to the actual point being made. Which is who the IFA sells his business to when he retires. Not whether he's allowed to retire, or whether he's allowed to sell his business.

The issue is whether he sells his business to another IFA, so his clients continue to get IFA service, or sells his business to a restricted adviser which we continually get told by IFAs on here should not be used and the only choice should be IFA or "DIY".

It would be like a doctor selling his business to a homeopath having spent his whole career slating homeopaths and telling people how superior he is to homeopaths.

Perhaps you could have bothered to read the whole posting rather than stopping half way.  The point I was making is that the IFA only has a requirement to provide independent advice,  What he legally does with his own business does not form part of that requirement.

You seem to know the IFA concerned.  Perhaps you can tell us for sure whether he really has spent his whole life slating FAs and saying he is superior to them? Generally in business it's better to "sell" your own product than rubbish someone else's.

A better comparison perhaps would be a pub owner who majored on selling local craft beers and on retirement sold out to a big national as there was no comparable bid from elsewhere.  Arguably hypocritical but understandable if he wanted a comfortable retirement.  Sadly principles dont pay an income.

PS: I will back up  my comment about IFAs retiring - if you object to them selling to the best bidder what do you suggest they do if they get no suitable offers from anyone you would consider appropriate?  We dont know (though I guess you might) whether there were any other offers.  

zagfles

Malthusian said:

zagfles said:

The issue is whether he sells his business to another IFA, so his clients continue to get IFA service, or sells his business to a restricted adviser which we continually get told by IFAs on here should not be used and the only choice should be IFA or "DIY".

The IFA could sell his business to another IFA, passing up 5 million quid in the process if he was dunstonh's imaginary IFA, and a month later the new IFA could go restricted or cash in by joining St James Place, leaving retired IFA's clients in exactly the same position.

In the end, it is out of the retiring IFAs' hands and in the hands of their ex-clients.

It would be like a doctor selling his business to a homeopath having spent his whole career slating homeopaths and telling people how superior he is to homeopaths.

No, it would be like a doctor selling his business to a doctor who charges higher fees and isn't quite as good at his job.

Well of course. A doctor could sell his business to Harold Shipman.

As with any decision made by an IFA, for example what to invest in, there are no guarantees that the outcome will be positive. But the decision is supposedly based on what is most likely to be a good outcome.

If the IFA has built a career on supposedly "acting in the clients' best interest", and the IFA genuinely believes using an independant adviser is in the clients' interest, then selling to another IFA is most likely to give the best outcome. Although obviously no guarantee.

Otherwise he's putting his own financial interest ahead of his clients'. And as above - that happens in all industries, so it's not so much a problem with the financial services industry itself, but with customers who seem far more likely to believe the financial services industry is acting (or is being forced to act by regulations etc) in the customers' interest rather than their own. And as in this example, and there are plenty of others, there are clearly instances where they do things they know full well is not in their customers' interest but in their own interests.