Unbiased advice?

Wednesday, 7th May 2008 12:32 - by Resident IFA

I received and read an article yesterday, written by Merryn Somerset Webb, a respected journalist who is Editor of MoneyWeek and writes for the Sunday Times amongst others. She was questioning the Financial Advice industry on a number of counts, mainly in response to the Financial Services Authority’s (FSA) Retail Distribution review (RDR). The RDR was undertaken to understand how Joe Public currently receives advice, if any, and how the model can be improved moving forward. Within this, the nature of advice linked to how the Adviser is remunerated is a key topic, drawing most of Ms.Webb’s ire. Firstly, I have to agree with her on two points: - As an Independent Financial Adviser (IFA) myself, I believe the current model is too complicated. We currently have IFA’s, Multi-Tied Advisers, and Tied Advisers – all offering different amounts of products and market coverage. I would hazard a guess that, if a survey were undertaken, less than 5% of the public could define these 3 categories. - The second point is that only those with the whole market of products available should be able to call themselves ‘Advisers’, the rest being sales-people. Allied to this, the fact that these ‘Advisers’ need to be judged against a higher minimum standard of qualification...here, here! (As an Adviser committed to, and some way down the road to, achieving ‘Advanced’ status). If the industry can become more transparent, more qualified, and thus more professional, we will be able to rise out of the shadows and join the other ‘professions’ i.e. Solicitor and Accountant. This will bring us more on par with the USA where these professions all have the same gravitas, Financial Advisers being perceived as the uppermost of them, if anything. Back to remuneration, Ms.Webb refers to the “current inherently corrupt commission based system” and “no sale, no holiday in the Maldives”. You can tell she isn’t at the coal-face of financial advice provision! I won’t disagree that some part of human nature will draw some Advisers to those providers and their products that pay higher commissions, but feel I need to defend the 90% of Advisers I meet that are ethically-minded and have their Client’s best interests at heart. Some personal examples: - Maldives? I have had only one week off in each of the last 2 years on package holidays to Spain! - My company operates a limit as to the commission taken on one of the ‘hot-potato’ products, Investment Bonds, to ensure all Clients are treated fairly and uniformly. - My recent Key Performance Indicators (KPI’s – one of which shows whether there is a measure of provider bias) show that I have nowhere near 20% of business placed with any one provider. - The change to a ‘fee-based’ IFA business cannot be rushed and the upheaval/financial peril that can be part-and-parcel of this should not be under-estimated, especially as a lot of IFA’s are small firms with 5 or less employees. My company has been assessing and planning this change for 6 months now...and I can see another 12+ months of this to come. I refuse to be tarred with the brush of the old-school, immoral Financial Adviser minority. Jack the Ripper I most certainly am not! Until next time...