When is an independent financial advisor not independent?

zagfles

Linton said:

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.  

You're still not getting it, although at least you've stopped using strawmen

Of course it happens in other industries, eg pubs. The point was that some people really believe that the financial services industry acts (or is forced to act by law) in the customer's interests, not their own. Hence the comparison with doctors, rather than pubs etc. 

<strawman>

You're right, principles don't pay an income, how silly of me. Maybe ban all regulation then, why shouldn't IFAs be allowed to eg recommend pension transfers which make them loads of money without having to justify it was in the customer's interest.

<\strawman>

<sarcasm>

I mean, image the indignity of having only a 3 million windfall on retirement rather than a decent amount, eg 8 million. How could anyone survive on that? Ridiculous. Food banks are already busy enough.

<\sarcasm>

<though terminating cliche>

Going round in circles now, not a lot more to say, is there?

<\thought terminating cliche>

DT2001

An article in the FT earlier this year stated the number of IFA’s was declining and the number of FA’s has just exceeded the IFA’s. The suspected reason was the increased costs partly due to more regulation but also lower fees. 
As all on here seem to agree that IFA’s are preferable to FA’s how do you suggest we ensure there are sufficient numbers to provide for those who do not or cannot DIY?
If you impose fiduciary controls due you force more IFA’s to sell or become FA’s because of increasing costs further? IFA’s need to make a reasonable living or you will not attract those that are more able to do a good job.
We must also remember that those that are happy with being moved from one IFA to another will not post a thread on here! 

Linton

zagfles said:

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.

You still haven't got it.  There is no general requirement that the IFA should act in the clients interests in the whole of the way he lives his life.  The requirement is solely that the advice should be independent.  This requirement is backed up with legally enforceable sanctions.  Is there any evidence that the IFA in question did not provide independent advice? If so the customer has redress for any losses suffered, otherwise the IFA has done his job.

A second aspect that the critics have not yet got is that the role of an IFA is not to provide a good outcome but rather to provide technical information and advice on how the customer can best manage their financial affairs that has a good chance of meeting the customer's objectives.  Bit like a lawyer - they will tell you the law and suggest how to present your case but they have no control over what the judge decides.

You attack the financial services industry for not working in the customer's interests.  What other industries can you cite that do have that as their main objective?  What about your good self?  Are you or did you work primarily for the purpose of benefitting others or in your own interests?

zagfles

DT2001 said:

An article in the FT earlier this year stated the number of IFA’s was declining and the number of FA’s has just exceeded the IFA’s. The suspected reason was the increased costs partly due to more regulation but also lower fees. 
As all on here seem to agree that IFA’s are preferable to FA’s how do you suggest we ensure there are sufficient numbers to provide for those who do not or cannot DIY?
If you impose fiduciary controls due you force more IFA’s to sell or become FA’s because of increasing costs further? IFA’s need to make a reasonable living or you will not attract those that are more able to do a good job.
We must also remember that those that are happy with being moved from one IFA to another will not post a thread on here! 

I think the bottom line is that IFAs aren't necessary for the vast majority of people. Most peoples' situation, objectives, attitude to risk etc aren't unique, there will be tens or hundreds of thousands of other people in the same boat. So individually tailored advice is simply unnecessary for most people, generic off the shelf/robo solutions will do. Similar to say workplace DC pensions, they usually offer a default or range of defaults, or something like PensionBee, or funds like the Vanguard target retirement funds, or simple stakeholder type pensions.

Even for drawdown, arguably the most tricky aspect to self manage, the FCA are bringing in "investment pathways", see here https://www.ftadviser.com/pensions/2020/09/09/what-the-fca-s-rules-on-investment-pathways-mean-for-clients/ 

Obviously some people with complex or unusual situations, objectives or requirements may need individually tailored advice. But they should be exception not the rule.

DT2001

Zagfles
Do you think the investment pathways are being introduced as too many, in the overseers opinion, are taking ill informed decisions?

I agree that the majority could fit into broad categories however for those that do not there should be good options. Maybe IFA’s will become more one off advisors. If you want to retire early, are in poor health, are single, have other funds (ISA’s etc) will you fit the broad categories? 

I have no idea how many clients IFA’s, FA’s, Wealth Managers etc have but assume it is the vast minority and the pathway’s rules will help ensure others abide by similar guidelines.

[Deleted User]

DT2001 said:

An article in the FT earlier this year stated the number of IFA’s was declining and the number of FA’s has just exceeded the IFA’s. The suspected reason was the increased costs partly due to more regulation but also lower fees. 
As all on here seem to agree that IFA’s are preferable to FA’s how do you suggest we ensure there are sufficient numbers to provide for those who do not or cannot DIY?
If you impose fiduciary controls due you force more IFA’s to sell or become FA’s because of increasing costs further? IFA’s need to make a reasonable living or you will not attract those that are more able to do a good job.
We must also remember that those that are happy with being moved from one IFA to another will not post a thread on here! 

I think the distinction between FA and IFA is overplayed. Good adviser/bad adviser. 
But that is the perception of many a client, who are liable to be disappointed to learn of their IFA selling them out to an FA.

There does seem to be more regulation and guidance needed, because advisers are helping themselves rather than their customers. The FCA looked in on what was happening (sample 1/4 million between April '15 and Sept '18) and found that 69% of DB pension advice was to transfer
https://www.fca.org.uk/publications/multi-firm-reviews/defined-benefit-pension-transfers
and 70% of those signed up for ongoing advice. 
https://www.fca.org.uk/news/press-releases/fca-acts-protect-consumers-transferring-out-defined-benefit-pension-schemes
"The FCA is also looking to address the conflicts of interest which arise where a financial adviser advising on a pension transfer stands to receive ongoing fees – which in some cases can be for 20-30 years following the transfer."

DT2001

ZingPowZing said:

I think the distinction between FA and IFA is overplayed. Good adviser/bad adviser. 
But that is the perception of many a client, who are liable to be disappointed to learn of their IFA selling them out to an FA.

There does seem to be more regulation and guidance needed, because advisers are helping themselves rather than their customers. The FCA looked in on what was happening (sample 1/4 million between April '15 and Sept '18) and found that 69% of DB pension advice was to transfer
https://www.fca.org.uk/publications/multi-firm-reviews/defined-benefit-pension-transfers
and 70% of those signed up for ongoing advice. 
https://www.fca.org.uk/news/press-releases/fca-acts-protect-consumers-transferring-out-defined-benefit-pension-schemes
"The FCA is also looking to address the conflicts of interest which arise where a financial adviser advising on a pension transfer stands to receive ongoing fees – which in some cases can be for 20-30 years following the transfer."

If the distinction is overplayed it doesn’t matter to whom they are ‘sold’.
They do have the option not to transfer.
If the transfer of the DB wasn’t in their best interests they can sue?
I assume you do not sign up for 20-30 years at day 1.

Linton

The majority of people investing are probably relatively young, employed, and placing most of their invested money in their employer's pension scheme.  Others may be small time hobby investors.  Such people dont need the services of an IFA.

However when they start really thinking about retirement an IFA may be very useful helping them set up a financial plan that matches the desired retirement age, the desired standard of living in retirement, and the appropriate investments.  They then may benefit from some hand holding until they are confident they can manage things themselves. I cant see how a pathway or robo advice alone can deal with the extremely wide range of individuals' circumstances.

The other main situation where I see an IFA as essential for most people is when they receive a lump sum far larger than anything they have previously experienced  perhaps as an inheritance or as compensation.  Here there could be complex issues of tax, short and long term investing, whether to take an income or not and if so how much  etc etc

One issue with robo and relying too much on standardised approaches is who bears the responsibility should it all go wrong perhaps because the investor's circumstances aren't adequately covered. The FCA currently seemingly tends to take the view that the customer is right unless proven otherwise when IFA cases arise.  Are the robo advisors willing to take this on?

For some people an IFA is somewhere between helpful and essential (inclusive).  Look at the level of questions that some newbies ask on these forums. And these are the ones who realise they dont understand something and have the initiative to find out. Those who try to frighten away such people from taking the independent advice when they need it seem to me to be highly irresponsible.

zagfles

DT2001 said:

Zagfles
Do you think the investment pathways are being introduced as too many, in the overseers opinion, are taking ill informed decisions?

I agree that the majority could fit into broad categories however for those that do not there should be good options. Maybe IFA’s will become more one off advisors. If you want to retire early, are in poor health, are single, have other funds (ISA’s etc) will you fit the broad categories? 

I have no idea how many clients IFA’s, FA’s, Wealth Managers etc have but assume it is the vast minority and the pathway’s rules will help ensure others abide by similar guidelines.

Yes there are a lot of people that make bad decisions, hence stuff like forcing people to take advice if they transfer a DB pension. So investment pathways are a good idea, although I don't think there should be any compulsion to use them.

Plenty of people want to retire early or are single etc, so they could easily fit the broad categories, there will tens or hundreds of thousands like them. So individually taolired advice is OTT IMO. But yes I think there's a place for one-off advice, or maybe intermittant advice say a few times in your life at various stages, rather than ongoing.

zagfles

Linton said:

zagfles said:

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.

You still haven't got it.  There is no general requirement that the IFA should act in the clients interests in the whole of the way he lives his life.  The requirement is solely that the advice should be independent.  This requirement is backed up with legally enforceable sanctions.  Is there any evidence that the IFA in question did not provide independent advice? If so the customer has redress for any losses suffered, otherwise the IFA has done his job.

A second aspect that the critics have not yet got is that the role of an IFA is not to provide a good outcome but rather to provide technical information and advice on how the customer can best manage their financial affairs that has a good chance of meeting the customer's objectives.  Bit like a lawyer - they will tell you the law and suggest how to present your case but they have no control over what the judge decides.

You attack the financial services industry for not working in the customer's interests.  What other industries can you cite that do have that as their main objective?  What about your good self?  Are you or did you work primarily for the purpose of benefitting others or in your own interests?

Oh dear, more strawmen. Did I say there was a "general requirement that the IFA should act in the clients interests in the whole of the way he lives his life"? Did anyone? Maybe you can point it out. No, as usual, you're arguing against a strawman you've built yourself. You've been completely whooshed, you're repeating stuff that's already been addressed and even agreed on. Like it happens in other industries. The criticism was more aimed at customers' niavety in trusting the FS industry rather than the FS industry itself.

Sorry if you don't get it. But I've explained it the best I can. You can carry on building strawmen to knock down if it pleases you.