Independent Financial Adviser

Quote:-

An IFA will be looking to do all he can to sell Haddock a product that is good for the IFA i.e maximises his commission. Not what is best for Haddock.
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What utter rubish, that mentality went out with the arc. As a fellow professional Simon I would have thought you would have understood better. An IFA has to have his investment advice passed by his compliance department. The compliance department will insure that the advice given is in the best interests of Haddock. If its not then it simply won't be passed.

The days of IFA merely selling for commission are well gone. IFA's are now so restricted by this "best advice" that I firmly beleive that an IFA cannot do his job correctly. There are now to many safeguards in place to protect the client that anything that isn't safe cannot be recomended. The days of buyer beware are gone and have been replaced with IFA beware.

As for those who don't want to pay professionals fee's then my attitude is simple, go and do it yourself. Then when it all goes wrong there is no one else to blame but yourself. This country is far to full of people who just whinge, moan and begrude people who are just trying to make a living.



Regards


NB

NB,
I am genuinely intrigued when you say that IFAs are now so restricted that they cannot do their job properly. Can you explain please?
Are you an IFA?
I agree that people must pay for advice, but my concern with IFAs is are you paying for someone who is genuinely on your side.
Also, I would take issue with your view that my mentality went out with the Ark. If improvements have been made to IFA regs it has been recent.
Regards
Simon

quote:

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Originally posted by Simon Perry:
1) An IFA will be looking to do all he can to sell Haddock a product that is good for the IFA i.e maximises his commission. Not what is best for Haddock.

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Out of date, wrong. Primary principle is Best Advice. If it is not best advice, the IFA will get caned.

quote:

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2) The commission is 'fat' because the IFA is likely to get an introductory commission plus commission for as long as Haddock is contributing to the plan. Your example of the £100 monthly contribution equating to £300 commission is so disingenuous as to be worthy of an IFA. Let's talk about a more realistic pension fund with a value of £100,000.

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Wrong again.

Try not to confuse size of fund with premium / contribution. The fact is, that for a regular premium of £100 pm. the commission paid to an IFA - the contribution to his business, not gross or net profit, is about £300. Lets not change the subject. Under Stakeholder regulations, there is about nil room for fund based commission. Not even the gargantuan amount of 0.5%.

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In those circumstances the IFA will be receiving at least £500 per year. And while we are on the subject of commissions, they are 0.5% of fund value as a minimum - often they are higher.

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Just plain wrong, again.

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The typical view in the industry is that commissions are OK value for customers who are only putting in up to £100 per month into pensions. After that you are better off paying an hourly fee.

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Wrong, again. Most people just dont want to pay fees. Fact.

quote:

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3) My closing comment was that they are the lowest of the low. Many are. The three I have had were. There may be a few who are OK.

regards
Simon

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To be honest, my suspicion would be that IFAs would see you as the man who knows the price of everything, but the value of nothing. As such,. not worth dealing with - it must be a real pain explaining *every* cost, *every* time.

Accountants? Enron?

Regards

Mike

Spending money I don't have on things I don't need.

I currently pay £150 per month into a private pension scheme "sold" to me by an IFA.

In reality, I pay £117 per month as the government gives me the rest in tax relief.

Mine is a "with profits" scheme that guarantees me a minimum of 5% interest per annum.

So after 4 years I have already gained £1584 in tax relief before any interest is added.

I paid a one-off fee of about £1000 at the start and I don't begrudge one penny of it.

The IFA in question was my (now retired) father who prided himself for his honesty and integrity as well as his expertise.

His very small company came 4th in a 1993 Daily Express competition to nominate the best IFA in the UK.



Regards,

Steve.

PS: To add, I didn't pay my c£1000 fee up front as the Financial Services Authority were proposing should be compulsory - presumably to wipe out all IFAs as the FSA are clearly in the pay of the high-street banks who want all the business for themselves.



Regards,

Steve.

Quote:-

NB,
I am genuinely intrigued when you say that IFAs are now so restricted that they cannot do their job properly. Can you explain please?
Are you an IFA?
I agree that people must pay for advice, but my concern with IFAs is are you paying for someone who is genuinely on your side.
Also, I would take issue with your view that my mentality went out with the Ark. If improvements have been made to IFA regs it has been recent.
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Simon,

No I am not an IFA I am an Accountant. However I have worked very closely with a number of IFA's and in the past have owned two firms of IFA's so I am fully aware of how an IFA's work.

I have been closely associated with IFA's and I have seen the advice given to clients. I am aware that most advice given now is primarily given to avoid litigation and not to gain the clients a real profit.

Any IFA faces a problem in the fact that most clients expect an IFA to produce "better than average" returns, yet to do this the IFA must take risks. If those risks don't pay off and the client looses then the IFA is severely critisised. If an IFA doesn't take a risk and the client makes a modest return then IFA is severely criticised.

The average IFA cannot win. The public generally expect an IFA to make them "Loads of money" and when the market underperforms like it has for the last few years this can be impossible.

As for the levels of comission that the IFA is perceived to receive this has been dramatically cut in previous years whereas an IFA's expenses like "professional indemnity insurance", "rent" "wages" etc have increased dramatically.

I pulled out the IFA market many years ago as I didn't consider the returns justified the time and effort. I also didn't think it was worth the personal risk and then there was the general attitude of clients who expect you to work miracles but begrude you earning anything from it.



Regards


NB

Quote:-

Accountants? Enron?

Regards

Mike
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Mike for the record, what do you do?



Regards


NB

quote:

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Originally posted by jlfrs:


Has this been proved?,(I'm asking out of interest not skepticism!).

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You just need to look at the companies that had to make payments back to the individuals who were mis-sold pensions. In my case "Merchant Investors" (part of Allianz) got fined, not the IFA. I also have some aquaintances at some other IM/Insurers and they say the same thing.

Steven,
The example you cite where your own IFA father was good enough not to rip you off has certainly got me convinced. But to be serious a minute, I now pay an hourly rate to a financial advisor, having moved from a commission based IFA, and am happy with the value for money. The conversations I have with him are much broader, including things like paying off my mortgage early rather than just looking for a product to sell me. It sounds like your father was a good IFA and I am not going to start taking digs at him here.
Mike,
You so are an IFA. If not now then you were. I agree people don't like paying hourly fees, but it is you that are wrong when you claim that commissions always offer better VFM for customers. IFAs on a commission basis are biased to higher commission products. IFAs naturally always deny this. And we can talk about the compliance department until we are blue in the face but the IFA industry has yet to genuinely clean up its act.
Perhaps if Haddock does go to an IFA and engages him on a commission basis we can see what advice he gets....
regards
Simon

Quote:-

PS: To add, I didn't pay my c£1000 fee up front as the Financial Services Authority were proposing should be compulsory - presumably to wipe out all IFAs as the FSA are clearly in the pay of the high-street banks who want all the business for themselves.
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Spot on Steven. The FSA would like to see the end of the IFA, they perceive their advice to be risky and dangerous. The pensions and endowment reveiew was nothing more than a witch hunt designed to put IFA's out of business. The FSA would rather large companies of inept salesmen would sell on a mass basis, than have small firms of IFA's who give good quality advice.



Regards


NB

Quote:-

I now pay an hourly rate to a financial advisor, having moved from a commission based IFA, and am happy with the value for money.
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There is an easier way Simon, do it yourself and then you don't have to pay an fee's. I find it remarkable that a fellow accountant needs to be advised on financial market.

All you need is the internet and a bit of time for research. It costs nothing.



Regards


NB

quote:

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Originally posted by NB:

There is an easier way Simon, do it yourself and then you don't have to pay an fee's. I find it remarkable that a fellow accountant needs to be advised on financial market.

All you need is the internet and a bit of time for research. It costs nothing.


Regards

NB

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True, but.....

Lets look at retirement. The options for a pension fund are:
1. Take an annuity with the provider - after deciding on shape of annuity.
2. Open Market option - can be found via the web.
3. Personal Pension with 25% tax free cash, or Section 32 transfer with 3n/80ths tax free cash? And what about widows/dependents pension? Guaranteed annuity rates?
4. Phased Retirement.
5. Income Drawdown.

The latter two are very often a much better idea for the sophisticated investor at Retirement. They are a particularly specialised area of financial planning which MUST be done via an adviser of some kind. Internet research will not show this possibility, its too complex and fraught. It is NOT right for everyone but if it applies, it has very good IHT and control advantages over a straight annuity. Its a bit like saying that I can find out via the internet how to remove my own apendix, and as I have a bit of a tummy ache thats what I'm going to do.

Lets also look at what happens if you get it wrong - tough, unlucky, hard lines. If you go via an adviser, ideally an IFA, and he gets it wrong - or, has happened, legislation is enacted which *retrospectivly* makes it wrong ( such as leaving Company Pensions - remember the Government encouraging personal pensions in the late 1980s? They dont...), then you can sue the IFA.

You get it wrong, unlucky.

Regards

Mike

Spending money I don't have on things I don't need.

[This message was edited by mike lacey on Thu 30 September 2004 at 10:24.]

quote:

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Originally posted by NB:

Mike for the record, what do you do?


Regards


NB

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Hi NB

I am a Senior Consultant for an Insurance Company, specialising in Group Pensions.

I do NOT deal with the public, or sell to them. I do, however, deal with IFAs and accountancy practices.

Regards

Mike

Spending money I don't have on things I don't need.

Quote:-

I am not, nor do I wish to become one because of the increasingly litigious nature of the British Public, and the utter lack of understanding from the Government, about what IFAs do.
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Mike,

It looks like you and I share the same principles. I would go one further and state the lack of understanding of the general public as a reason for not being an IFA.

I understand and agree with your comments on the pension senario. There are many occasions where an IFA's advice is invaluable and that advice should be rewarded in accordance with the expertise given.

BTW, my partner hails from Berkshire, nice part of the country!



Regards


NB

Simon

You are not answering any of my points or queries.

Commission of £300 is not "fat."

Fund based commissions within a Stakeholder costed contract ( as just about every one sold now is ) are about nil per cent.

I have not claimed that commission is better value than fees.

I have not mentioned Compliance Departments, so I am not sure why you want to talk about them until you are blue in the face.

And you call me disingenuous... of the three IFA you have had, they are the lowerst of the low... but the one you use now is fine. Hmmmm.

As an accountant, I presume you charge an hourly rate.

What is it?

Regards

Mike

Mike

Spending money I don't have on things I don't need.

quote:

BTW, my partner hails from Berkshire, nice part of the country!

...unless it's Slough where I used to live and Bracknell where I used to work...

Back to the subject though: unless one has knowledge of the financial markets,(as some of you clearly do), there is little choice left to "joe public" but to seek help on financial matters from a professional. That advice is going to cost money but in my opinion and the opinion of some of the postees on this thread, it's money well spent.
As in all walks of life, the advice is subject to human error and mistakes are going to be inevitable.
"When you're right nobody remembers, when you're wrong, nobody forgets"....

Mike,
Nothing you have yet said convinces me that when an IFA gets a punter through the door they will:
1) Try to persaude the person infront of them to go to an hourly fee basis instead of a commission basis (because they will frequently earn more through commissions)
2) Once on a commission basis will seek to explore fully a broad range of financial planning options, because they will want to find products that maximise their future income through commissions. Many IFAs will find a way of doing this.

If I am out of date on my understanding of their current commission structures, I do apologise for that. Based on this £300 commission you have cited I wonder how they ever manage to stay in business!

The 3 commission based IFAs I have used were total shockers but I don't really want to go into the details of it here. I accept that this doesn't mean that every single one of them is the lowest of the low. I have also based my views on that of a friend who works for a FS company that deals with IFAs. His long held view is that they are not trustworthy on a commission structure. The financial advisor I use now has some qualification I forget the name of now and doesn't do any commission work.

My charge rate is between £250 - £290 an hour, depending on the work. My services are provided to FTSE 100 companies. They are highly sophisticated buyers of professional services. It is not analagous to the IFA situation either in type of customer I deal with or the qualifications necessary to carry out the work.

NB expressed amazement that I would need to consult anyone on my financial affairs. I am actually in whole hearted agreement with your response to that, Mike. My own investment options are infact heavily rectricted by the SEC and other independence rules governing what companies I can invest in either directly or indirectly so planning effectively for my retirement is not as easy as it might be.

In summary I apologise for saying they are the lowest of the low, but am not prepared to accept that we are yet at a situation where it is IFA beware rather than buyer beware.
Regards
Simon

Patrick,
Trying to sum up:
I agree with a lot of what you say. My point is that the IFA system, in my opinion, has an inbuilt fatal flaw which hinders rather than helps the client get the best advice. That flaw is commission. I believe that Mike's point is that it does nothing of the kind, and that the FSA and media have misunderstood the situation, the commissions are low anyway, but in response a whole slew of regs have been introduced that now prevent the IFA from doing his job properly. NB's point is why the bloody hell do I need one in the first place.
Simon
AlexG,
IFA no. 2 tried and tried and tried to sell me an endowment policy to replay my first mortgage. Finally we 'agreed' on a repayment mortgage. This was all at very short notice with a rushed flat purchase. When the paperwork came through he had gone ahead with setting up an endowment which I then had to change at the last minute.
Simon

Simon,

With all due respect I beleive your perception of IFA's is biased and I am not going to attempt to persuade you otherwise.

My opinion is simple, you pay your money and make your choice. If you are so unhappy with IFA's then don't use one, you won't pay any comission or fees simple!

However you will miss out on all the experience and expertise that an IFA has to offer. Ask yourself a simple question, why should your clients pay you £250 per hour for your services? I am sure in your career you have given some excellent advice, some mediocre advice and some poor advice, thats life no one is perfect.

Sadly in this country we cannot see past the bad advice given and no one respects or comments about the good advice given but hey thats life!



Regards


NB

NB,
A fair post. I admit my bias. It just concerns me as the advice they give can have such crucial repurcussions. But let's not start all that again.
Regards
Simon

Fair comments Simon!



Regards


NB

quote:

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The pensions and endowment reveiew was nothing more than a witch hunt designed to put IFA's out of business.

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Ironically, if it wasn't for the FSA my father would have quit the business sooner. He planned to retire at 55 but had to work an extra 5 years to make ends meet after all the admin costs had been piled onto his small company by the FSA. He survived the pensions and endowment witch hunt completely unscathed.

BTW, if someone put in a claim for mis-selling against an IFA, it was the latter who had to pick up the bill for the investigation costs, often running into thousands, even if he didn't lose.



Regards,

Steve.

Quote:-

BTW, if someone put in a claim for mis-selling against an IFA, it was the latter who had to pick up the bill for the investigation costs, often running into thousands, even if he didn't lose.
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Yes I know I have been there, my client (ex) used a no win no fee Solicitor and had no real grounds to claim mis-selling. It cost him nothing, it cost me many thousands of pounds.



Regards


NB

NB

As I indicated above, in mt comments about a woman who carried out endowment reviews... "At this point <when the client realised he was in for a payout> the tone of the answers changed markedly....."

the lies started, in other words...

Regards

Mike

Spending money I don't have on things I don't need.

quote:

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Originally posted by Simon Perry:

If I am out of date on my understanding of their current commission structures, I do apologise for that. Based on this £300 commission you have cited I wonder how they ever manage to stay in business!
Simon

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That, Simon, is one of the problems! An IFA can spend hours travelling, fact finding, putting a report together with his recommendations and if the client does not sign up - or, as does happen, buys the recommended product via the internet or Saint Richard Branson, the IFA gets paid nil.

There is a real problem with the low commissions now paid on pensions - the fact that it is not worth selling them to most people. The reality is, that most people do not buy pensions, they have them sold to them. If there is no point in selling a pension, the public, as a whole, will not buy one - look at the debacle sorrounding Stakeholder - what an incredible flop in sales terms.

Come retirement, if there has been no real pensions provision - no pesky salesman making people save money - there will be no real pension at retirement. THAT is the true crime, IMO: people will be forced to rely on the state for handouts.

If decent levels of commission where payable, there would be a reason to sell pensions.

So they would be sold.

But they aint.

Regards

Mike

Spending money I don't have on things I don't need.