a little about me

dunstonh

How unbiassed will they be even if they are so called "independent" if, as do most IFAs, they receive remuneration from the investment companies they recommend whether that is as an upfront fee or as an annual trail?

Agree a fee if you are paranoid about that. The fee can then be paid for by cheque or out of the commission. The latter is increasingly common and is known as customer agreed remuneration and the FSA may make it a compulsary option for IFAs from 2009 (fee agreed which can be paid for by cheque or commission equalling the fee).

Flynn_2

I'm not sure that it's paranoia exactly although obviously the IFAs who like to portray themselves as "unbiassed" might like to suggest that.

Unless the advice is entirely fee-based with a both the entire upfront fees and all those lovely annual trail fees (regardless of whether the poor client's investments go up or down) being returned to the client then the IFA can make more money by selling one product than another. Very little for example if he sells low cost tracker funds and probably nothing at all if he recommended direct investment of any kind rather than managed funds. In most cases he will be entirely dependent on the insurance and fund managers for his living.

So long as the punter fully understands that any "Independent Financial Advisor" hoping to make a living is neither independent in any real sense of those who pay him nor unbiassed, no matter how much they try to pretend otherwise, then there's no problem.

dunstonh

for example if he sells low cost tracker funds

They pay trail.

and probably nothing at all if he recommended direct investment

Which would be a breach of FSA rules as IFAs are not authorised to recommend direct investments.

Flynn_2

dunstonh wrote: »

They pay trail.

Dunston, could you tell me how much say L&G FT All share tracker with annual charges I think of 0.5% pays compared with funds that charge 2%.

dunstonh wrote: »

Which would be a breach of FSA rules as IFAs are not authorised to recommend direct investments.

Exactly.

Let me put it this way, I don't know of any fishmonger who would call himself an IFA, i.e. Independent Food Advisor.

He sells fish. If you ask his advice he'll suggest you buy a nice big bit of fish, probably the one he makes the most profit on. He won't suggest you buy a nice bit of steak for tonight instead or become a vegan. Nor would he pretend that he's unbiased.

IFA's don't sell a full range of financial investments, mostly just insurance and managed investments that pay commission. But they don't call themselves Independent managed fund advisors, they grandly call themselves Independent Financial Advisors and some even pretend they're unbiassed. They can't sell direct investments in the stockmarket or commodities or property or all the other possible financial investments and some fund managers pay them better than others.

If they were as frank as fishmongers instead of pretending they are "unbiased" when they are as dependent on a limited range of investments as a fishmonger is on fish then we could trust them a little more.

Aegis

Flynn wrote: »

Dunston, could you tell me how much say L&G FT All share tracker with annual charges I think of 0.5% pays compared with funds that charge 2%.

Exactly.

Let me put it this way, I don't know of any fishmonger who would call himself an IFA, i.e. Independent Food Advisor.

He sells fish. If you ask his advice he'll suggest you buy a nice big bit of fish, probably the one he makes the most profit on. He won't suggest you buy a nice bit of steak for tonight instead or become a vegan. Nor would he pretend that he's unbiased.

IFA's don't sell a full range of financial investments, mostly just insurance and managed investments that pay commission. But they don't call themselves Independent managed fund advisors, they grandly call themselves Independent Financial Advisors and some even pretend they're unbiassed. They can't sell direct investments in the stockmarket or commodities or property or all the other possible financial investments and some fund managers pay them better than others.

If they were as frank as fishmongers instead of pretending they are "unbiased" when they are as dependent on a limited range of investments as a fishmonger is on fish then we could trust them a little more.

I'm not quite sure what you're complaining about here... The FSA made the decision that independent financial advisers would not be authorised to transact direct investment business because that's the realm of stock brokers, and stock brokers are a totally different creature to IFAs. An IFA can, however, give advice on pensions, investments, mortgages, protection and a variety of other solutions, so they are most definitely financial advisers and not just managed fund advisers. They can also take the whole view of a client's financial status and plan their financial portfolio to match their risk profile, and they can do so taking account of every product available to financial advisers via the whole-of-market listings.

They are required by the FSA to be focused on meeting client needs rather than lining their pockets, and any cases where they do otherwise can be (and ARE) complained about, and the customer is usually refunded completely, often with interest. If the client is truly concerned that commission is influencing their adviser too much, the option should exist for them to pay a lump sum for the advice, thus taking away any remuneration the adviser would otherwise get from initial/trail commission (though the advice should still be the same).

In short, they deal with all of the areas that a financial adviser would be allowed to deal in, and they do so independently of the providers, so why shouldn't they be called independent financial advisers?

Blowsy

Flynn wrote: »

Let me put it this way, I don't know of any fishmonger who would call himself an IFA, i.e. Independent Food Advisor.

He sells fish. If you ask his advice he'll suggest you buy a nice big bit of fish, probably the one he makes the most profit on. He won't suggest you buy a nice bit of steak for tonight instead or become a vegan. Nor would he pretend that he's unbiased.

IFA's don't sell a full range of financial investments, mostly just insurance and managed investments that pay commission. But they don't call themselves Independent managed fund advisors, they grandly call themselves Independent Financial Advisors and some even pretend they're unbiassed. They can't sell direct investments in the stockmarket or commodities or property or all the other possible financial investments and some fund managers pay them better than others.

If they were as frank as fishmongers instead of pretending they are "unbiased" when they are as dependent on a limited range of investments as a fishmonger is on fish then we could trust them a little more.

I couldn't agree more :T .

What's more, can an "independant" advisor ever truely analyse every fund available? No, unless he simply looks at past performance alone (which is what alot of IFAs will base their recommendations on) but that's not enough. Truely analysing the fund managers, their investment style and beliefs and monitoring their performance and behavior is way beyond the scope of an IFA as it would simply be too time consuming.

As well as the fact that different providers pay different commissions you have the human element... people like dealing with people they like. We all form relationships with people and I'm convinced that this also taints the so called "independant" tag.

It's frustrating to read people banging on here about the importance of being independant when there's no such thing.

Aegis wrote: »

They are required by the FSA to be focused on meeting client needs rather than lining their pockets, and any cases where they do otherwise can be (and ARE) complained about, and the customer is usually refunded completely, often with interest.

And then there's the real world!

Flynn_2

Aegis wrote: »

I'm not quite sure what you're complaining about here...

No complaint Aegis, just making the point that IFAs are able to offer only a very limited range of financial investments, just like the fishmongers who don't sell steak, and they will tend to recommend what they can sell rather than possibly more suitable investments that they can't. Don't expect IFAs to be too keen on recommending investments they can't sell.

Aegis wrote: »

If the client is truly concerned that commission is influencing their adviser too much,

Too much? Doesn't "unbiased" that mean it won't be influenced by commission etc. at all? But if so we would need to ask why some funds pay IFAs more commission than others. Is it simply pure generosity on the part of the fund managers or is it because they know that the size of the commission they pay does in reality influence IFAs? Or have they got it all wrong and woefully underestimated the selflessness of IFAs?

Most pay the IFA an ongoing trail commission of 0.5% p.a. from the 2% or so management charge so could Dunston tell us how much less is paid by tracker funds that only charge 0.5% management fees and which of course provide less justification for churning? IFAs tend not to like low fee trackers very much.

Yes, it's possible many people would be better paying a fee to get all the commission returned to them but I understand that IFAs get different rates of commission depending on how much business they do with a fund. The more business they do with a company, the higher the commission rate they get. So even if the advice is fee based, just by placing more business with a favoured fund can increase what they earn when they do commission based business - so paying a fee still won't necessarily ensure lack of bias towards those favoured funds.

I'm sure that every IFA is as honest as the day is long going to work each day just for the joy of helping others rather than maximising his profits. But is he likely to be unbiased towards the products he sells, don't count on it.

Aegis wrote: »

In short, they deal with all of the areas that a financial adviser would be allowed to deal in, and they do so independently of the providers, so why shouldn't they be called independent financial advisers?

Because they can only sell the limited range of financial investments that their businesses are dependent on perhaps? :think:

MrMicawber_2

And teachers just teach for what they can get, and doctors do medicine for what they can get and the whole world is completely selfish and out for number one.

Some of the IFA's on this site are incredibly helpful, so perhaps a little less sarcasm.

Aegis

Flynn wrote: »

No complaint Aegis, just making the point that IFAs are able to offer only a very limited range of financial investments, just like the fishmongers who don't sell steak, and they will tend to recommend what they can sell rather than possibly more suitable investments that they can't. Don't expect IFAs to be too keen on recommending investments they can't sell.
Too much? Doesn't "unbiased" that mean it won't be influenced by commission etc. at all? But if so we would need to ask why some funds pay IFAs more commission than others. Is it simply pure generosity on the part of the fund managers or is it because they know that the size of the commission they pay does in reality influence IFAs? Or have they got it all wrong and woefully underestimated the selflessness of IFAs?

Yes, it's possible many people would be better paying a fee to get all the commission returned to them but I understand that IFAs get different rates of commission depending on how much business they do with a fund. The more business they do with a company, the higher the commission rate they get. So even if the advice is fee based, just by placing more business with a favoured fund can increase what they earn when they do commission based business - so paying a fee still won't necessarily ensure lack of bias towards those favoured funds.

Not heard of that one myself. However, the commission the IFA gets is based on negotiations. An IFA who prefers a certain fund because of its manager's strategy would be able to negotiate a better commission if your comment is correct, which means that it doesn't necessarily happen in the order you're implying it does. i.e. rather than going for the funds with the better commissions, they go for the better funds and negotiate a better commission after.

I'm sure that every IFA is as honest as the day is long going to work each day just for the joy of helping others rather than maximising his profits. But is he likely to be unbiased towards the products he sells, don't count on it.

If you have evidence of them being unbiased, make a complaint. I would imagine, however, that most consumers would have no cause for complaint.

Because they can only sell the limited range of financial investments that their businesses are dependent on perhaps? :think:

If someone sold all available cars, would you complain about them being an independent car salesman? If not, then why would a financial adviser who sells all products that financial advisers can sell not be called independent? It's asking a bit much for them not to call themselves independent for not being able to sell products that financial advisers are not allowed to sell anywhere?

If people want a car, they go to a car dealership. If people want to invest in shares, they go to a stockbroker. If they want financial advice, they go to a financial adviser. If they want whole-of market and unbiased financial adviser, they go to an IFA.

I still fail to see what your complaint about the name is.