SINGING LIKE A CANARY

TODAY’S BLOG

SINGING LIKE A CANARY

My twitter account got a little heated at the weekend. I, like many other financial planners am utterly fed up with financial scams. Most of us get scam emails – I have yet another only two minutes ago purporting to be HMRC with a refund… Anyway, what irritates me and many planners is the apparent ease and frequency at which scams occur.

We have a regulator and anyone that knows me will know that I believe that they play an important, arguably vital role within financial services (see Cops and Robbers in Spotlight March 2019). Yet the FCA twitter account seems unable and unwilling to accept information about suspected (or even obvious) scams.

Better but not great

An item by James Coney in The Sunday Times (12 May 2019) called “Here’s how the FCA could stop savings scams – use Google” sparked some mirth which evolved into a small, sometimes heated “debate”. Some comments suggested that regulation is much better than it was, that the scams are less costly. That the FCA is doing a good job. I am not denying that the FCA is trying, they have an enormous brief. However, there are many of us that think that too much time is wasted on the wrong things.

Climb a mountain, or use the tunnel ?

This week I will have to submit yet another 6-monthly online report to the FCA telling them lots of things about my business. It takes ages and frankly I don’t think it reveals much of any importance. In any event wouldn’t a crook would simply make up the data? At the coalface of advice regulation can also be over the top…you want to top up your ISA… well yes, that requires a report, really? To top one up? Yes. You want money out? Well a report telling you that taking too much may mean it runs out is required… Admittedly the length and depth of reports and research are not prescribed by the regulator, but very much enforced by compliance and professional indemnity insurers. Certainly there is a place for this, but often it looks and feels like “overkill”.

Scams to the left of me, scams to the right…

I cannot explain why people being ripped off is so upsetting to me. Its wired into my DNA or childhood experience I suspect. Many advisers are on the same side as the regulator, we both make a living from financial services. The flashpoint, was the suggestion that advisers will be forced to pay yet higher levies for the FSCS to make compensation payments to scammed investors. This relates to yet another “obvious to an adviser” scam of mini-Bonds of London Capital & Finance. Who made promises that they would never keep to the tune of £237m from 11,500 savers. This was not a regulated business. There was no FSCS compensation for the investors. At least that’s what should have been the case, but now it seems this is disputed and advisers will have to foot the bill… for a scam they had nothing to do with.

Virtual reality isn’t reality

James Coney, like many of my peers argues that a quick search of the web will reveal plenty of scams. Some are obvious, some less so. This is the occasion to use the word fake – there are fake websites, fake products and fake endorsements. Please don’t get taken in. Ask me or your adviser if you have one. Why take the risk for a couple of extra percentage points of interest?

Sadly, I am of the view that the system is in need of an overhaul. The regulator thought that forcing all other advisers to charge fees, and explain these each year would solve the mis-selling problem. I’m sure it has a small favourable result, but the bulk of crime is committed by criminals, who lie. No amount of legislation or disclosures will have any impact on them, what they require is the strong arm of the law and a custodial sentence.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

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The Old Mill Cobham Park Road, COBHAM Surrey, KT11 3NE

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SINGING LIKE A CANARYDominic2023-12-01T12:17:25+00:00

The Hurdles We Face

Solomons-financial-advisor-wimbledon-blogger

Like most advisers, I regularly have enquiries as a result of the new pension freedoms. In essence, someone wants to move money out of a pension and the Pension company have told them that they cannot do so unless an adviser signs the forms, by which they really mean, takes responsibility for the advice if or when it all goes wrong. So after attempting to explain why I will not do this for the umpteenth time, I thought that perhaps a post about it would be easier… its lengthy, but provides context. If you are in this position and cannot find the time or energy to read 4 pages, then you really should not be messing around with your pension.

The Hurdles We Face

In the past, most people received a poor service from their financial adviser. As advisers were paid based on selling products, some of which were good, some of which were awful. The majority were unlikely to see “their” financial adviser (assuming s/he stuck around) unless the adviser believed that there was another chance to sell a product and thus earn some money.

Free Advice Illusion

The illusion of “free advice” was perpetuated by the product providers (the big life assurance and pension companies). They made it worse by having incredibly complex charging structures. They competed for business based on spurious data about past performance coupled with extra commission, above the agreed standard LAUTRO rate. Unhelpfully each product had a different rate of commission anyway so it was always likely that you would end up with a product that suited the adviser rather more than it suited the investor. In the late 1980s there was also the added problem of Independent Advisers being forced to disclose commission whereas Tied Agents didn’t (and couldn’t) Tied Agents were paid much more commission in any event. It was Tied Agents that were largely responsible for mis-selling of pensions. The collective advising legacy of Tied Agents is now shaped in the form of the largest financial advice company in Britain.

Suits you sir…

As an example, £200 into a pension typically paid commission to the adviser of around £2,300 and then about £5 a month after 4 years until payments stopped. The same amount invested into a PEP or ISA would pay typically £6 a month for as long as the payments were made (£72 a year). PEPs and ISAs did also include a fund based commission of 0.5% as well, so on a fund worth £2400 this would generate another £12 a year (plus growth) – £2,300 now or £84 over the year? (not hard maths).

This invariably resulted in bad selling practices and inappropriate advice. The result was marginally better regulation, improved qualification requirements for advisers and a ban on commission for investments from 2013. All advisers had to charge fees and agree these with their clients.

Unfortunately, this has not prevented criminals being criminals. The digital revolution which has helped on many levels is now under constant threat from fraud. Standards have had to be raised. What most people don’t appreciate is that the advice provided by financial advisers needs to be suitable, it sounds rather obvious but has implications. The most significant being that the adviser is liable for his or her advice not simply at the time, or their working career or indeed their lifetime, but for eternity. We are the only group on earth that can be sued posthumously (our estates).

Tongue-tied about risk

As a direct consequence of the historic mis-selling, any insurer providing professional indemnity insurance (a mandatory requirement to hold) takes a fairly negative view of bad practice and particularly “risky” products – which don’t necessarily mean investor risk, but those that invariably have been used to scam people. This has resulted in fewer insurers, higher premiums to the point that many advisers consider this a tax on good practice rather than an insurance against unlikely complaints.

Common Sense Revolution

A good adviser will always want to look after their clients well, forming a long-term relationship where a good service is provided and is financially rewarding to both the adviser and the client. Most advisers now look after their clients much better, adding significant value over time. There is much documented evidence for this (google adviser alpha).

The risk to the adviser is now more likely to be a bad relationship with a client, that results in a complaint, so service is vital and actually serves both client and adviser much better anyway. So very few advisers are now willing to take on a “one off” piece of work. The risk of things going wrong is too great.

Getting to know you

In a typical process an adviser must demonstrate that s/he knows their client before offering advice. This means sufficiently understanding the clients existing arrangements, circumstances and plans for the future, all within the context of the current real world. Here’s a brief list of the sort of things we require.

· Evidence of your identity and residency (are you a potential fraudster?)

· Family circumstances, context (who else is impacted?)

· Income and tax information (to reduce but also to avoid fraud and evasion)

· Assets (on a global basis)

· Liabilities (on a global basis)

· Existing arrangements (old employer pensions etc)

· Giving (historic, present and planned)

· Current spending levels (where does it go? How much does life cost you?)

· Goals (why, when, who, what, how?)

· Attitude to risk and capacity for loss

· The content of your Will (where will all the above go?)

I could go on, but you probably get the point. Obtaining all of this isn’t as straight-forward as you may imagine either. Whilst you may loathe insurance companies, I can assure you that tracking down and obtaining the right information from them about you is enough to test the frustration boundaries of anyone. Additionally, some people are simply not good at facing difficult truths – such as their own lack of financial control and an unwillingness to confront the basics of something that reveals where it all goes (like an expenses statement).

Trust me, I’m a…

So we’ve now gathered the above, we need to assess it and analyse it properly. Then in light of your aims, what’s realistic given your resources, appetite for risk and ability to cope with loss, we can put together solutions from everything that is “out there”…. Which to remind you is an ever evolving, changing, competitive marketplace, so what’s “best” last week may not be so today.

Committed to paper

We then provide a suitability report, which is meant to be read. Most are long because a lot needs to be said, but we also operate in a climate of complaint and many complaints are won based on what was not said by the adviser than what was done or even whether the adviser was “right”. The client is a human and wants to simply get on with life and not read a very long document about financial stuff.

Then there is the issue of fees and investment costs. We have evolved from the delusion that advice is free, but most people still believe that it is cheap. Even with very good technology (none of it joins up) completing the list earlier and creating a “file” takes about 2 days for the typical person, that assumes the information has arrived.

Fees

Anyway, fees – most charge to look after your money, so will take a percentage of this. The more you have the more you pay (as with most things in life). However in our unnecessarily complex tax system, the more you have invariably means the greater your options and the greater the complexity. Just for a benchmark, complexity probably starts at income of £80,000, but could be a lot lower depending on your age.

Fees come in all forms, but in essence I see six

1. The first is to implement or arrange something (i.e.. ISA). Some call this an initial charge. In essence, it is the result of a recommendation to use XYZ investing in a portfolio of funds with ABC, which is suitable because…. Charges are typically 1%-5%

2. Ongoing management and looking after of the arrangement – the idea being that stuff changes, you need to make adjustments to keep within the parameters that were established. Perhaps switching funds within the portfolio, rebalancing or changing the “shell” of the investment to something now better. Charges are typically 1%

Both of these rely on you having money to invest and look after. Its not that different from commission, invariably taken from the investment rather than your bank account. It works but its not perfect. We know that it isn’t perfect as well, but its how most of us work.

3. The service fee, this is often paid as a retainer and provides for the cost of meetings and keeping all your stuff (old style and new style) up to date and keeping you in the loop, charges are typically £50 – £500 a month

4. Ad hoc fees – for specific, often complex pieces of work but of course nobody does this unless they are fully furnished with all the facts about you (as per my list). Charges typically a minimum of £300

5. The financial planning fee – this is really where the best advisers are heading. In theory you don’t need any money to be invested with your adviser, they design a financial plan, which will take account of all you have and reveal a version of the future so that you can actually know how much is enough, what you need to do and so on, irrespective of who ends up investing the money. A financial plan can be a mammoth document covering the reasons for each assumption made, or it can be reduced to the headline charts, showing you the what and why with a list of action points. A financial plan will cost at least £1500, some ten times this (remember complexity and options). Some advisers recognise that this is often “new” for their clients and discount it heavily to £500-£750 be warned that this also indicates their lack of confidence in the value that they are offering. Financial planning is a real skill, not simply a new label.

6. The no strings fee. This is the latest attempt to separate financial planning and perhaps behavioural coaching from your money. You pay all fees directly from your bank account, irrespective of how much you have. Naturally there will be some expectation of a correlation between how much value is added or work done, but payment is separate. As a result, there will be no adviser charge shown on any illustrations as the adviser is paid separately. This of course, makes the illustrative projections look much better. The adviser will be paid what was agreed irrespective of results. To be blunt most of us would prefer to work this way, but don’t have clients wealthy enough to do so. Those that do, successfully tend to charge £5,000 – £30,000 a year for their services. Note that the fee is not necessarily related to time, but more likely value. Consider a tax planning saving of £800,000 what is that worth?

Show me the money

In the attempt to protect and help consumers the regulator has ensured that fees and costs are reflected in all illustrations (evolving since 1995 with “commission disclosure requirements”). Illustrations now show the impact of investment charges and adviser charges. These are significant and appear to cannibalise your investments. When coupled with low rates of growth used for illustrations and a well-intended “remember the impact of inflation” the resulting illustration far from helps consumers, but puts them off ever bothering to move money out of their bank account, (which if run by the same illustrative rules, would have you spitting blood).

Full circle…. Back to affordability and making it appear cheap

The truth, as uncomfortable as it may be, is that financial planning and good financial advice are now largely out of reach (price wise) to most people, due to our operational costs and the need to make a profit so that we can come back next year and do this all again so that our clients are looked after properly within the context of accurate information. It is an exhausting process. Most advisers I know (and I know a lot) would all want everyone to have better financial advice and are actively seeking ways to help through new media (podcasts, blogs, Vlogs, books, seminars, free downloads etc). Naturally, we hope to attract some new good clients, but we are also keen to help educate and improve financial literacy. We call it the savings gap. It’s in all our interests to help Britain become a nation of financially independent adults….the alternative is really rather frightening.

In conclusion (finally!) I cannot do a one-off piece of work for you. It isn’t in my long-term interests to do so (and probably not yours) without doing a proper job. Any adviser that offers to do so is at best deluded and perhaps desperate for money; at worst somewhat economical with the truth and likely running the risk of taking cash for forms, aiding scammers, knowingly or foolishly. This will result in further complaint, the inevitable failing of his or her business, and a compensation bill that the remaining good firms have to split between them (known as FSCS levies). Such a system has numbered days and is currently being reviewed in a fairly timid fashion. This really infuriates most advisers, many of whom vent in online sector forums and can easily be found on topics like Unregulated Collective Investment Schemes (UCIS) or Defined Benefit Pension Transfers or any recent receipt of a regulatory invoice from the FCA or FSCS, despite this there has been little appetite for opposition to a regulator that appears powerful yet out of touch.

When all is said and done, nobody can guarantee anything in financial services. Trust needs to be earned, I believe that this is done by being transparent and keeping promises. Quite how or even how much advisers are paid becomes largely irrelevant under such conditions. Any good financial planner or adviser wants a good long-term relationship with clients.

I genuinely wish you good luck in your endeavour to find a trustworthy, ethical adviser that has possesses business acumen. At one point there were over 250,000 people selling pensions and insurance products, there are now about 25,000 registered individuals who are licensed to do so across 5,720 firms, the vast majority of which are not yet financial planners. You could search my social media account to find some, but in general those are the elite advisers. Beware that search engines or directories are also paid-for marketing tools.

Think I’m wrong? today a report about pension transfers from final salary (“gold-plated pensions”) continues to press the point that advisers cannot be trusted. Nobody appears to have any notion of the cost or risk involved, everything is assessed in terms of a price for filling out forms. See Professional Adviser item by Hannah Godfrey.

Dominic Thomas
Solomons IFA

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The Hurdles We FaceDominic2025-01-27T16:07:36+00:00

Your call is being recorded…

Your call is being recorded..

One of the many things that regulation is meant to provide is a high degree of security for investors and clients. In the main, the regulator exists to keep markets fair and ensure that people are not ripped off. You may have a view about their success over the years… then again perhaps things would have been worse without them – one of those conundrums.

From time to time (for which read – with great frequency) the regulator issues Consultation Papers, in theory to outline an issue, propose some remedial solutions for comment. Today’s 500+ page (CP16/29) latest idea is for all advisers to record telephone calls with clients. This, they believe, will help reduce problems as many people cite that they were told something over the phone, upon which they acted.

1973 movie poster The Conversation starring Gene Hackman

Are you being served?

To provide some context, to buy any regulated financial product, you have to have a “Reason Why Letter” – which can take a variety of forms, but in essence is an explanation of why you have been advised to implement a product. If you have been a client of ours for anything more than five minutes you will have had this from us.

So I wonder what your thoughts are if we are to record your phone calls with us. We have nothing to hide and are in the process of installing VOIP telecoms anyway, which would enable us to do this (though our motivation was for a better and more cost effective telecom system and the fact that BT are gradually moving everyone in this direction). However, does it actually provide you with any more protection?

As you may also know, we have been using software that enables us to hold meetings over the internet – such as gotomeeting or Skype (and others). Of course we may have called you from a mobile phone at some point too, so presumably these ought to be recorded too (if the logic applies). Then perhaps meetings (in person) should be recorded or indeed any interaction between us.

Anything you say may be used in evidence against you…

You may have a view on such an approach – all the data would be stored for at least 5 years (which is of course cyberspace that needs to be rented) – so there is a cost financially, but I also wonder how it might impact our relationship. For example, when I am on hold to a big company and they are recording the call, I’m minded to make statements like – why don’t you hire more people to answer the phones if you are so busy? Why have you outsourced the call handling around the world, where my personal data is now viewed?… or how on earth do you guys sleep at night with such a rubbish service? (but I have, to date, not said this aloud).

Its my belief that a crook, or someone that wants to take your money away from you by selling you something that simply isn’t real or realistic will find a way to do so… and not recording the call or then editing the data file would be obvious to anyone. Anyway I thought that as I’m being asked for my views, the best ones are probably yours, so email me your thoughts. I need to feedback thoughts by the end of the year… not long now!

How is your paranoia? here’s the trailer to a film on the subject… Paranoia

Dominic Thomas
Solomons IFA

Your call is being recorded…Dominic2025-01-23T10:56:03+00:00

Should advisers fear being black listed?

There are numerous benefits of social media. One is the ability of peers in any field to discuss topics and share ideas. Sadly this comes with the inevitable double-edged sword of whether to post under your real name or a pseudonym… or “nom de plume”. This I assume is connected to a fear of being black listed.

Of course there’s a lot to disagree about, and it appears that many will take considerable time to vent and click send. Not always a great choice, I’ve been guilty of it myself. There is a general perception, whether explicit or implied that somehow anything critical of those in power will result in some form of retribution. Hence many publish comments under false names for fear of being “black listed”.

Invariably the problem within my own sector is that of fear of the regulator. Of course on the one hand I think this is quite a good thing, advisers ought to be “afraid” of the regulator. That would really mean that they are surely there to keep people on the “straight and narrow”. So I welcome good, strong regulation – it’s in my interests (and yours). The hope is that strong regulation reduces the potential for people to be ripped off.

A critical voice brings change

On occasion, of course some criticism of the regulator is entirely appropriate (after all is anyone or any organisation perfect?). It is this that advisers fear (good ones too). The concern is rather obvious – raising a critical voice may be met with a sudden barrage of requests for information, which can prove time consuming and frankly unnecessary. I take the view that the regulator needs to be held to account and publish under my name. Frankly it is rare that I am critical of them – my main gripe is invariably a difference of approach to the way investors who have suffered scams or mis-selling are compensated following advice from “bad” advisers.

At present, the system is such that “bad” advisers rip off investors. The product, fund, adviser and their PI cover all fail and the remaining “good” advisers pay the compensation. By remaining, I really do mean a diminishing number. At one point there were about 250,000 “financial advisers” today there are about 22,000. Most advisers pass this cost onto their clients. To date, I haven’t despite a 30-day demand for payment increasing by 67% in 2015 on top of a 69% increase in the previous year! Hard to explain and pass on such fee rises in a period of virtually no inflation!

I don’t think I’m being too radical or inflammatory in my industry comments. This isn’t the 1950’s, McCarthyism has not returned (as far as I can tell). On which note, there is a very good new film out called Trumbo – the true story of a man that was blacklisted by some very unsavoury people in Hollywood. Trumbo was forced to write under a pseudonym to allow him to earn a living and he wasn’t ripping anyone off. I’m not so sure that advisers publishing under pseudonyms is really the same thing at all. I wish I had the creative writing skills of Trumbo! I only stand with him in the sense of being free to write or speak without fear of reprisal.

Oh, and you are welcome to check out my industry comments online at places like New Model Adviser, Financial Adviser, Professional Adviser.. but they are pretty dull and aimed at advisers.

Here is the trailer for Trumbo, you may recognise Bryan Cranston (who plays Walter White in Breaking Bad) and Helen Mirren has a small role, but has you piping venom… well it did for me. It has only just been released here in the UK… its one of the few films that I gave 10/10… but of course I may have been influenced by issues raised here!

Dominic Thomas
Solomons IFA

Should advisers fear being black listed?Dominic2025-01-27T16:38:36+00:00

Money Talks

You’ve heard the expression “money talks” I’m sure. Well, if you have tried to open a savings account or current account with a main UK bank in the last 10 years or so you will have observed and experienced a high degree of red tape and hoops that you have to jump through to prove you are who you say you are (even if you’ve been with the bank for your entire adult life).

If you are a client, you will have gathered that we have to verify your identity, residency and source of your funds. We try to make this as painless as possible and apply common sense. This is important (sadly) because there are people out there that are involved in criminal activity, taking money made from drugs and laundering back through legitimate financial arrangements so that it becomes “clean”. Just so that you are clear, if we (or anyone in financial services) suspect this is the case, we have to report it, else risk imprisonment ourselves.

So it was with some degree of surprise that I read that Barclays received yet another eye-watering fine. This time for poor handling of financial crime risks. The fine imposed is £72million. This relates to the lack of checking done on some of their clients…. ultra high net worth clients, who were “politically exposed people” (a term used not just for politicians, but those also in positions of significant public service etc)

Suits you sir…

Barclays were caught arranging £1.9billion (pause, that’s billion)… for a few such ultra high net worth individuals, without the proper checks in place. Perhaps it had something to do with the commission that they earned in the process – some £52.3million (all in a day’s pay). This occurred in 2011 and 2012 when Bob Diamond was at the helm (until July 2012). He resigned as a result of the Libor scandal. Anyway Barclays went to “unacceptable lengths to accomodate these ultra high net worth individuals”.

The FCA have fined Barclays in the hope that it will make them think twice about similar actions in the future. The real motivation is of course the sums involved, and as the FCA’s final notice said the clients involved were ‘politically exposed persons’ which are individuals with a ‘high political profile’ or have or had held public office, and pose a higher money laundering risk as their positions may make them vulnerable to corruption.

So now you know that the regulator thinks such people are at greater risk of corruption. Yet the irony is that had this incident happend at a financial planning firm, like this one, should it have been found wanting in such a manner, a custodial sentence and lifetime ban would have probably been handed down…. so there’s more than a slight degree of “power play” at hand here. Hence a few advisers are more than a little peeved that yet again, despite the big fine, the punishment never lands anywhere other than the shareholders in the Bank… after all aren’t these senior executives remunerated for the risk that they take? isn’t that why the big bank, pays big salaries, to big names to work with other big names and get away with a big golden handshake?

What still perplexes me, is why anyone would ever use a Bank for anything other than a bank account…. yet they do, in their millions.

You can see the FCA fine notice here… for the breach of principle 2.

Dominic Thomas
Solomons IFA

Money TalksDominic2025-01-23T10:56:39+00:00

Pension Exit Charges

I wonder if I can be honest with you about pension exit charges? I freely admit that I probably spend too much time concerning myself with what others within my industry think. I spend a lot of time improving my knowledge and this involves reading both technical papers and opinion. Yet I find myself increasingly perplexed by the comments on industry media outlets.

THIS IS A LONG ITEM, BUT PLEASE STICK WITH ME…

Like it or not, the financial services industry regularly gets berated for being nothing short of self-serving. Often different or indeed competing elements of the spectrum that make up the financial services get lumped together, frankly this is our collective fault for not clearly defining or explaining the differences, invariably made harder by really rather poor regulatory clarity.

However I was utterly exasperated with my peers on yet another comment section within the “trade press”. This concerned the issue of exit penalties on pensions. At the time Mr Cameron, the Prime Minister was expected to outline his frustration with pension companies that apply high exit fees… for the sake of simplicity, let’s call them what they really are – transfer penalties.

Old World not New Model Advisers

The comments appeared in a publication that I respect by Citywire – New Model Adviser, the article written by a very thorough journalist, Will Robbins. The publication aims to high-light good or best practice and aims to help improve the advice sector and thus help achieve better results for the investing public. So one would hope that the readers and their comments are towards the front forward-thinking end of the adviser population.

The King is dead, long live the King

On the topic of exit penalties it seemed to me that commentators reverted to their historic stances as salesmen, not advisers, preferring to defend high penalties rather than lead a revolution to have them scrapped or at least capped.

Investors are being ripped off

Yes it is true that pensions set up were contracts and that contract law is therefore under the microscope…. but there are times to simply admit that enough is enough. I have seen some horrendous penalties (the difference between the actual value and the transfer value of a pension)… some taking well above 30% of the fund. That is simply not good enough. OK there was a contract, but neither “adviser” nor investor could have anticipated these penalties which have become increasingly pertinent as investors and advisers seek better, more efficient and cost-effective solutions. Something that I regularly do to great effect for our clients.

Analogies have flaws but…

However suggestions that imposing a cap were largely greeted with derision. I was under the impression that it is the advisers job to represent the client, not the pension company and if engaged by them, to seek the most suitable solutions. I would like to think that it is in the collective interest to allow someone to move their money elsewhere with minimal fuss and cost so that it can grow better (hopefully) – and yes it cannot be guaranteed…. at least it cannot be guaranteed in a way that your life is not guaranteed by the protection that the airbags in your 2015 car should deploy if you have an accident, as opposed to your 1986 car that doesn’t have any of the current safety features. Yes you may be maimed or even die in the accident, but which do you think is likely to provide a better journey?

Aren’t we meant to put you, the client first?

In an industry steeped in scandal and mistrust this ought to be an opportunity for pension companies and advisers to put clients interests first. I find this even more frustrating as in reality it is all to do with commission and the lie that advice is free. Old style policies are those that typically paid high levels of commission, which the pension company advanced to the adviser as payment for arranging the pension with them. Of course it didn’t help that some pension companies offered more commission for using them as opposed to others, thus bringing into question the independence of the advice and adviser. If you went to a Tied Agent or Bank, you didn’t even get any option to compare costs…. which was the job of the IFA at the time.

Thinking that is so last century…

This has been going on for years, yet alternative approaches have also been available for those willing to face some truths. In 1999, 16 years ago I formed Solomons, removing commission, charging 1% on any investment or pension product – no matter who… a level playing field. 16 years ago! The regulator eventually caught up and banned commission on investments from 2013 called RDR so since then all advisers have had to charge fees properly.

Vive la revolution

Why does this vex me so? well as someone still in their 40’s I expect and plan to remain advising clients for many years to come, so I’d like to see things improve. I would like to see the standard of advice improve and the number of scandals and complaints decrease… not least because invariably the way compensation works is that those left working within the sector pay the compensation levy, even if they had nothing to do with it. This summer I had yet another regulatory invoice for this levy, an increase of 64% on last year…there comes a point when I and many (thankfully) like me, simply cannot absorb all these costs without jeopardising our own sustainability.

If you are fed up with your pension or not even sure what its worth, please check out my free guide, which will help you regain control of your pension planning. There ought to be a box below to download this, if not just email me.

Dominic Thomas
Solomons IFA

Pension Exit ChargesDominic2023-12-01T12:20:04+00:00

Is Financial Services like gun crime?

Here in the UK we have some gun crime, its horrible, but it is still thankfully rare. In North America the obession with guns is perplexing, the rising death toll and increasing militarisation of police forces is alarming. We have seen further mishandling and stereotyping lead to deaths in police custody and now further riots in some American cities. I’m not anti-police, I am anti-stupidity and I don’t think I’m telling you anything you don’t already know. America has almost no gun control, you can wander into a gun store or general department store (heck, sometimes they even give them away for opening a bank account -see Bowling for Columbine) and buy a firearm and ammunition. No real checks. We tend to think this is insane.

Yet here in the UK we have an equally perplexing situation which has collectively blind-sided most people. Its in the form of pension advice. Yes that rather dull topic (believe me I know how dull). Anyway it seems that your neighbour – the one that’s tempted by all those offers of too good to be true (because it isn’t true) high investment returns is wreaking havoc with the rest of us, like a loaded gun.

Garbage in, garbage out..

Despite warnings from the regulator, or there being a regulator, believe it or not, there are some “advisers” out there peddling all sorts of… well…”junk”. These always promise high returns, but actually pay high commission (something that is meant to be banned). So I can only assume that the person that does this is greedy, gullable or vulnerable. If the latter, then they have my sympathy and support, but those that are gullable, well it may sound harsh, but at some point in life you have to take some responsibility for your actions. As for the greedy… why should the rest of us pay for your gambling habit? eh?

Back to the gun analogy. Say I am a shop keeper, I don’t sell guns, in fact I sell books, but the guy nextdoor does. Guess what? his customer went on a rampage in the mall and shot 60 people. Being a shopkeeper I am sent a bill for compensation because I am a shop keeper.

What do I mean? Well pensions are regulated products and in theory should be arranged by regulated advisers. However in some products (SIPPs – Self Invested Personal Pensions) you can hold “uncoventional” funds… or what I might call “stuff you shouldn’t ever touch”. The regulator (FCA) would call this “non-mainstream funds” and in fact categorise them as “unregulated” in other words not regulated and therefore not actually protected by compensation. However because they were bought through a SIPP (regulated) and arranged by an adviser (regulated) therefore when it predictably goes wrong (it will) anyone that is an adviser gets to pay for the compensation. Now I don’t know about you, but I thought being an adult involved taking responsibility for your actions, so being one, I don’t sue people every time decisions I take don’t work out right.

Yes inflation is 0% but fees increase 75%

I tell you this because on top of a £20million levy a few days ago in March, the new annual levy has been set, increased from last years £57million to £100million for those that arrange pensions (shop keepers). This levy always comes with 30 days to pay (thanks). This is only a fraction of the full regulatory fees that I and other adviser firms have to pay.

Nobody to blame… but the good guys can pay up right?

The pension companies that allowed these investments in their pensions claim “not guilty – the adviser did it”, the regulator claims “We can’t use our product intervention powers on unregulated investments”… so cannot stop the funds being sold (or bought).

Those that sold these things have scuttled off elsewhere, probably to re-emerge in a different guise, leaving the dwindling number of firms (now about 5,300) and advisers (now around 24,000 from about 250,000 20 years ago) to pay the bill. The bill is paid by the firm and is enough to wipeout some firms, meaning that next year….the numbers reduce, so the share of the bill increases. There is only so much “cost” that a small firm can manage before needing to pass this on to their clients. I therefore predict that as a consequence, many advisers will be “forced” to put up their fees… which means you are also coughing up for the greed of your neighbour, because they cannot be bothered to take any responsibility for believing in fairytales…

Sorry to moan, but seriously… this isn’t fair is it? Of course people that have been ripped off need compensating, but seriously, you didnt think investing in a timeshare via your pension was normal did you? Your comments would be very welcome…. perhaps I am missing something, perhaps my entire profession is… in which case I’d like to know so that I have a snowballs chance of improving it.

Dominic Thomas

Is Financial Services like gun crime?Dominic2025-01-27T16:09:57+00:00

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