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  • FIRST POST
    • MSE Guy
    • By MSE Guy 30th Sep 11, 3:51 PM
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    MSE Guy
    MSE News: Guest Comment: How financial advice will change for good
    • #1
    • 30th Sep 11, 3:51 PM
    MSE News: Guest Comment: How financial advice will change for good 30th Sep 11 at 3:51 PM
    This is the discussion thread for the following MSE News Story:

    "If you have a financial adviser there are fundamental changes coming which will affect how you access and pay for advice ..."

Page 1
    • bigfreddiel
    • By bigfreddiel 30th Sep 11, 4:13 PM
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    bigfreddiel
    • #2
    • 30th Sep 11, 4:13 PM
    • #2
    • 30th Sep 11, 4:13 PM
    RDR: we need better advice are we prepared to pay?

    The Retail Distribution Review will change the way consumers get financial advice.




    By Paul Farrow

    6:15AM BST 16 Jul 2011
    Comment


    Would you be concerned if you discovered that your doctor only had an A-level to his name, rather than a full qualification? Probably, but when it comes to financial advice there is a chance that your adviser could have fewer qualifications than you think.

    But that is about to change soon financial advisers who want to be able to label themselves "independent" will have to have a higher qualification. The new requirement forms part of the Retail Distribution Review (RDR), which will radically change the way you receive financial advice and hopefully for the better.

    As it stands today, anyone looking for a financial adviser has to pick their way through independent financial advisers, whole-of-market advisers, multi-tied advisers and sales representatives of product providers such as banks and building societies.

    Some advisers are paid commission for their advice, others receive fees instead, while some receive both forms of payment. In short, it can be all a little confusing.

    The Financial Services Authority (FSA) is proposing from the end of next year to have just two main types of adviser an independent adviser who offers products from the entire market, and a sales adviser, whose primary purpose is to sell a product from one or more providers.


    Crucially, advisers will no longer be able to be paid commission by product providers.
    In the FSA's words, the aim of RDR is "to establish a resilient, effective market, where consumers can have confidence and trust at a time when they need more help and advice".
    But according to a recent report from Aviva, around three million people will struggle to get decent advice once the new rules come into force, because IFAs will target higher-net-worth individuals after the RDR.
    There has long been a concern that the RDR will result in a two-tier advice system, with the majority of people ending up simply being sold products rather than being advised on them.
    In its current form, the RDR is likely to see more consumers opt for advice from their local high street branch rather than an IFA. Given recent actions from the banks, people may not even be sold products they may have to go it alone.
    That appears to be the message from Barclays after it closed down its advice arm earlier this year.
    The FSA is right on one point we are going to need more help and advice. Younger generations certainly face an uphill struggle. It is not just pension provision that will be a massive issue in years to come, so too will long-term care.
    Here again it would seem the banks do not want to help. It was not so long ago that HSBC decided to enter the long-term care market with the acquisition of the Nursing Homes Fees Agency. In its statement at the time, HSBC said that it "forms part of the bank's strategy of evolving its range of later-life services to fit with the extraordinary changes over recent years as identified by our Future of Retirement study".
    Fast-forward five years and HSBC says long-term care is very much a niche market and, as such, "no longer forms part of the group's strategic direction".
    It might be a niche market, but long-term care is a growing problem that is increasingly being debated in Westminster. Living longer has its downside, unfortunately, and care fees are an expensive business.
    Maybe HSBC's recent decision was based on its latest Future Retirement Report, which shows we do not care too much for our elderly parents. Its 2011 report says our biggest fear is not caring for elderly relatives, but falling household incomes that will leave us more worse off in old age than our parents.
    There is a serious point. The Aviva report shows people talk to their friends, go online and visit their bank before seeing an IFA. And this is before RDR has seen the light of day.
    We should be trying to encourage consumers to seek decent financial advice, yet the RDR might scupper this. The Treasury Select Committee now wants the whole process postponed by a year to allow advisers more time to get qualified, yet they have had four years to do this. The clock is ticking, but as it stands the RDR is a long way from restoring consumer confidence.
    • MacMickster
    • By MacMickster 30th Sep 11, 4:40 PM
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    MacMickster
    • #3
    • 30th Sep 11, 4:40 PM
    • #3
    • 30th Sep 11, 4:40 PM
    Whilst the intention is obviously to ensure that clients receive advice that is unbiased by the amount of commission on offer, I fear that it will leave many choosing to rely on advice from "the bloke in the pub" rather than pay a professional for their expertise.
    • Lokolo
    • By Lokolo 30th Sep 11, 4:40 PM
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    Lokolo
    • #4
    • 30th Sep 11, 4:40 PM
    • #4
    • 30th Sep 11, 4:40 PM
    Although they have made the article based on all advice options i think it would have been appropriate to have information on platforms such as HL which will also changepost RDR.

    A lot of the changes will mean low cost investors or clients bing priced out which isnt a good thing.
    • oldvicar
    • By oldvicar 30th Sep 11, 5:09 PM
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    oldvicar
    • #5
    • 30th Sep 11, 5:09 PM
    • #5
    • 30th Sep 11, 5:09 PM
    I think the most important RDR change is bringing fees into the open.

    I believe some people will be discouraged from taking advice.

    I also believe that currently far too many people are lured into investment products long before they have built up sufficient savings on deposit, because excessive levels of commision can make it worthwhile for an IFA to advise on a very small portfolio. If people can be encouraged (by the likes of MSE maybe?) to remain in simple savings accounts until they can see the merits of paying 1000, 2000, or whatever an IFA quotes them for proper advice then so much the better IMO. In this ideal world of mine there will be less work for IFA's but the best of them will survive and prosper, along with their clients.
    • dunstonh
    • By dunstonh 30th Sep 11, 5:23 PM
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    dunstonh
    • #6
    • 30th Sep 11, 5:23 PM
    • #6
    • 30th Sep 11, 5:23 PM
    For however much things change, they stay the same. Call things by new names, change the disclosures but the end result is much the same for most independents. Most IFAs I know are either giving up before RDR or are already working that way and have been for some time.

    Tied agents and transactional advisers are going to be where the biggest "shock" is.

    A lot of the changes will mean low cost investors or clients bing priced out which isnt a good thing.
    A lot of people already are. The more qualified and experienced/professional advisers tend to focus on those with more wealth. That leaves the bottom end to deal with banks, tied sales reps and newbie advisers.
    Last edited by dunstonh; 30-09-2011 at 5:28 PM.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • Pincher
    • By Pincher 30th Sep 11, 5:59 PM
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    Pincher
    • #7
    • 30th Sep 11, 5:59 PM
    • #7
    • 30th Sep 11, 5:59 PM
    The financial system is a pyramid scheme, and it's always the majority at the bottom who get shafted.

    The rich don't really need financial advice.
    The just need a portfolio manager who spread their risk and sit back and enjoy their 5%. Any bank can do that for them.

    It's the low income who work for their little piece of heaven that need help. Whether it's pro bono advisors, Citizen Advice, or another quango, we need to have advisors who are NOT PAID AT ALL.
    • jem16
    • By jem16 30th Sep 11, 6:07 PM
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    jem16
    • #8
    • 30th Sep 11, 6:07 PM
    • #8
    • 30th Sep 11, 6:07 PM
    The just need a portfolio manager who spread their risk and sit back and enjoy their 5%. Any bank can do that for them.
    Originally posted by Pincher
    Never seen a bank with a protfolio manager. With a bank you choose the investments - might as well go DIY than use a bank.
    • dunstonh
    • By dunstonh 30th Sep 11, 6:15 PM
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    dunstonh
    • #9
    • 30th Sep 11, 6:15 PM
    • #9
    • 30th Sep 11, 6:15 PM
    Whether it's pro bono advisors, Citizen Advice, or another quango, we need to have advisors who are NOT PAID AT ALL.
    Who is going to pay for them?

    The FSA wants to get rid of cross subsidy.

    The rich don't really need financial advice.
    The options available to the rich are greater than the poor.

    The just need a portfolio manager who spread their risk and sit back and enjoy their 5%. Any bank can do that for them.
    Would you like to name a bank that does that and not under advice?
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • Pincher
    • By Pincher 30th Sep 11, 8:05 PM
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    Pincher
    Who is going to pay for them?
    The FSA wants to get rid of cross subsidy.
    Originally posted by dunstonh
    I know even Citizen Advice Bureau is cutting back,
    but there is every need for unpaid, and unbiased advice.
    I'm just pointing out there is no real intention to help the lower income group.

    The options available to the rich are greater than the poor.
    Would you like to name a bank that does that and not under advice?
    Originally posted by dunstonh
    Loads of banks have private banking arms intended to leech off the rich. I filled out a portfolio manager form with a divorcee who had a nice settlement. She had no idea what it was all about ten years ago, and any advice so far have totally gone in one ear and out the other. She just gave them total discretion. Not even environmental and moral restrictions: just make me some money. She wasn't dumb enough to give one firm all her money, though.

    You might be conscientious about sector allocation, immunisation, casflow projection, but that's what they pay you for, so they don't have to bother with the details. As far as the rich is is concerned, here is a lump of money, you were recommended by a friend, do you stuff. All that financial advice talk bores them.
    • scotsbob
    • By scotsbob 1st Oct 11, 11:40 AM
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    scotsbob
    Good news but why has it taken so long? Financial advisers, or salesmen as I prefer to call them, have been shafting the gullible in their quest for high commission payments for far too long.
  • pqrdef
    But according to a recent report from Aviva, around three million people will struggle to get decent advice once the new rules come into force, because IFAs will target higher-net-worth individuals after the RDR.
    Originally posted by bigfreddiel
    So how do they work that out exactly? A system based on percentage commissions is an incentive to target high-net-worth individuals. Wirh a system based on flat rate fees, the customer's wealth makes no difference to the IFA.
    • jem16
    • By jem16 1st Oct 11, 12:09 PM
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    jem16
    So how do they work that out exactly? A system based on percentage commissions is an incentive to target high-net-worth individuals. Wirh a system based on flat rate fees, the customer's wealth makes no difference to the IFA.
    Originally posted by pqrdef
    Under the old system, high net worth cross subsidised low worth clients. Now that is not being allowed, low worth clients would find it would cost them much more than they would have paid under the commission system so they would be unlikely to use the service of an IFA.
    • Lokolo
    • By Lokolo 1st Oct 11, 12:49 PM
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    Lokolo
    Under the old system, high net worth cross subsidised low worth clients. Now that is not being allowed, low worth clients would find it would cost them much more than they would have paid under the commission system so they would be unlikely to use the service of an IFA.
    Originally posted by jem16
    Exactly, iam a prime example of this. Currently HL charge me no explicit fee, good. However they keep something like 0.5%/0.75%, which equates to around 15/20. Post RDR they will bring in explicit fees,and if its anything like the unbundled platform fees it will cost around 3x as much. And for only a small portfolio the costs wont make it worthwhile.
  • pqrdef
    Exactly, iam a prime example of this. Currently HL charge me no explicit fee, good. However they keep something like 0.5%/0.75%, which equates to around 15/20. Post RDR they will bring in explicit fees,and if its anything like the unbundled platform fees it will cost around 3x as much. And for only a small portfolio the costs wont make it worthwhile.
    Originally posted by Lokolo
    However, they still make more out of their high-worth customers on commission than they will on fees. Pricing low-worth customers out of the market while capping what they make from high-worth customers isn't going to be a winning business plan.
    • Lokolo
    • By Lokolo 1st Oct 11, 1:48 PM
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    Lokolo
    However, they still make more out of their high-worth customers on commission than they will on fees. Pricing low-worth customers out of the market while capping what they make from high-worth customers isn't going to be a winning business plan.
    Originally posted by pqrdef
    No but if you look at some of the other platforms (dunston recently linked somewhere which is changing their platform for post RDR), that they are taking 40 a year + a percentage of portfolio depending on the size which would make more money from the higher net worth clients, but it still rules out lower end clients.
    • jem16
    • By jem16 1st Oct 11, 2:40 PM
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    jem16
    However, they still make more out of their high-worth customers on commission than they will on fees. Pricing low-worth customers out of the market while capping what they make from high-worth customers isn't going to be a winning business plan.
    Originally posted by pqrdef
    They won't have an option. The FSA is banning all commission sales. Charges will have to be explicit.

    For unbundled platforms at the moment, the higher the amount you have, the lower the percentage fee you pay the platform. Lower net clients have to pay more.
    • gadgetmind
    • By gadgetmind 1st Oct 11, 3:12 PM
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    gadgetmind
    I refuse to speculate until I've seen what the post RDR platform charges are.

    As for where those who can't afford fees will go, there are a lot of good books and very informative web sites on the subject of pensions, investing, ISAs, and such like. There is also a lot of free advice here, admittedly of varying quality, but humans are intelligent, adaptable, and capable of handling contradictory information and different points of view.
  • pqrdef
    We've drifted from advice fees to platform fees. But sticking with the platform fees, presumably it'll be possible to buy commission-free shares in funds direct from the fund house.

    Self-select ISAs will be an issue. But there's obviously a demand here, because everybody's ISA life, even the rich, starts with one year's allowance, and many platforms will want that puny sum hoping it will grow. Not many firms will want to price their ISA so it's not in the running until you've already built up 10 years' money on somebody else's platform.
    • patman99
    • By patman99 1st Oct 11, 3:14 PM
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    patman99
    So, what's to stop an IFA from sending all the various lenders a letter stating that he will remove their products from his list of available products unless they pay an administration charge of 1,000 per annum. This is and admin fee, not commission.

    Just imagine, if just 100 lenders pay, then the IFA makes 100k and may then offer his services for a ridiculous fee such as 10 all-in.

    There are always going to be ways to beat the system, same as with the new AWR.
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