Commission – I Don’t Understand it either!

Commission – I don’t understand it either!

If you know anything about me and the firm, you will know that from inception (1999) we removed commission from all financial products that we arranged. This was due to wanting to remove bias between financial products and provide better arrangements for our clients. Admittedly ahead of our time and it wasn’t until January 2013 that commission had to be removed from investments as a result of the regulator’s review of the market.

Yet only this month (January 2015) I am wrestling to understand commission on a tiny life assurance policy that I have arranged for a client. Long story short we asked to remove the commission as usual (reducing the monthly premiums by about 30%). However it appears that in this instance, the insurer only removed “initial commission” and when the terms came through, the renewal commission of £1.06 per month would be paid to us from month 49… until the policy matures in 10 years time. In short we would potentially receive commission of £1.06 a month for 95 months…. not exactly a lot of money, but not what we promised! So I request that this commission be removed, only to find that the monthly premium is reduced by just one pennny a month… rather than passed directly onto the client as I had assumed. In this scenario, the insurer merely keeps £1.05 a month extra as pure profit. Bonkers! OK I know its not a massive sum, but then that’s just because this was a small policy, the cheapest from the market, but multiply it by millions of customers…

So, it would seem to me that I should take this extra commission (not payable for 4 years) and either pass it all to the client or offset it against his fees, but to my mind this merely demonstrates how behind the times some product providers are and why I believe that so few of them have the remotest chance of surviving another thirty years. As for the regulator, in their infinite wisdom, the commission ban only applies to retail investment products… not insurance… no, I dont understand it either!

Dominic Thomas

Commission – I Don’t Understand it either!Dominic2025-01-28T14:55:30+00:00

Retail Distribution Review (RDR) Chaos before Christmas

Just A Few Days Left… until Retail Distribution Review

Most of us now buy a large proportion of our Christmas gifts on-line. Those that have not planned ahead, may have an anxious wait for the parcels arriving during the busiest period of the year with only a couple of weeks left. In a similar way, advisers have been awaiting RDR, the Retail Distribution Review which is also only a few working days away now. It officially starts on Monday 31st December 2012 (that’s in 24 days time). Sadly, whilst full of noble intentions (clearly priced advice, better quality advisers, clearly defined types of adviser) I regret to say that its a complete shambles across the majority of the financial services industry.

What The Dickens?

You need proof of course, but take Nationwide. One of the few mass-market banks/building societies that has intentions to provide advice going forward. Most Banks elected not to do so as they priced their hourly costs at over £250 an hour, which of course is not likely to be afforded by most of their customers, who are likely to scream “more? you want some more?” in that Oliver Twist way as yet another way of extracting cash from unsuspecting customers is served up like a warm bowl of gruel. So in practice most people will no longer be able to go to their bank for advice; (I want to say that this is probably a good thing as bank advice generates the most complaints and most advisers would probably say isn’t as good). That’s a half-truth though, they have more complaints because they have a lot of customers, as for being as good – well some are, some aren’t as with all other advisers. The reality is that it should be the case that getting advice is better than not getting any, so even the Banks have a role to play.

Get Your Goose? Walks, Talks, Sounds, Smells and looks like…

Sadly, due to the way that the FSA have approached “adviser charging” this has created a raft of problem with pretty much all financial products requiring an upgrade and re-think. It is concerning that Nationwide have today announced that they are suspending their pension advice because even at this stage they don’t have the ability to offer an RDR compliant pension. They know that they want to get 3% for the “advice” and 0.5% for ongoing “advice” but bluntly to anyone in my industry this looks very much like a product selling approach. To those in the know, this is akin to “if it walks like a duck, speaks like a duck, looks like a duck… it is a duck”. To enlightened advisers, this would raise the question of Nationwide’s leadership, culture and governance to have allowed matters to get to this point with this “approach” and that is putting it very politely. Natiowide are reported to have about 460 “advisers” and are looking to get the number over 500. in the meantime Nationwide have said that customers wanting a pension should go to speak to an independent financial adviser… which of course Nationwide is not and from the end of the month, will be offering “restricted” adviser solution. As of this moment, their website has not been amended to reflect this fact.

Who hasn’t delivered… Santa or Sants?

Santa will not be bringing you a pension from Nationwide this Christmas, largely thanks to the way Mr Sants (who is seeking new employment) has decided to interpret and apply RDR. Mind you, its not as though there’s a queue of people asking if they can have one. Pensions aren’t really in that naughty or nice discussion are they? So credit to Nationwide for being nice by suspending pension advice, although of course if they hadn’t they would have probably been found out as rather naughty and on an entirely different list. Mind you, Nationwide are “on your side” this Christmas.

Retail Distribution Review (RDR) Chaos before ChristmasDominic2025-01-27T16:15:54+00:00

Banks Leaving Financial Advice to IFAs

1990: Tie Me Up, Tie Me Down

Banks to leave financial advice to IFAs

Banks have been declaring their hand for the new financial world from 1st January. Last week Santander announced that they would only be offering investment advice to those with £25,000 or more and only from the range of products that they produce. In short they sell what they make. I’m always amazed that anyone would actually go to a bank for financial advice, but hopefully from January at least it will be clear how little a part of a proper conversation they are even able to entertain.

Too expensive for Bank customers

This was on the back of Lloyds also announcing that they are scrapping their services to anyone with less than £100,000 – again, why would anyone with £100,000 go to Lloyds for investment advice is beyond me. Barclays had already announced that they will not offer financial advice, except via its wealth management team, who focus on ultra wealthy (and presumably fairly easily pleased). HSBC will scrap their tied advice and provide execution only services (meaning you order what you want and they sort it out), they intend to remain whole of market, though frankly I don’t see how this will work in practice. Royal Bank of Scotland has abolished its independent arm (if you could ever find it) and going for a restricted model (limited financial products). Nationwide, one of my favourite Building Societies, is going to give it a go at offering fee based advice. It will be interesting to see how they get on and I imagine that the other Banks will be watching carefully.

Limited options for most

So in summary, the new rules about providing advice mean that the vast majority of people living in Britain will not get any form of independent advice. They probably won’t get an awful lot of option for restricted advice either. That of course is one way to solve the problem of mis-selling and scandal (reduce the choice) but it doesn’t seem terribly well thought through to me. We need a society with better financial education and greater access, not less.

Banks Leaving Financial Advice to IFAsDominic2023-12-01T12:22:55+00:00

Lost in Translation: Insurance in chaos?

Yesterday’s ruling by the European Court of Justice is very much in-line with the principles of fairness outlined in EU Directive 2004/113/EC, but ironically fails to be “fair”. Regrettably this is another example of poor thinking and unintended consequences. Not by the judges, who have been left little room for manoever, but by the politicians that failed to see the consequences of their noble aspirations for equality way back in 2004.

From 1st January 2013 (conveniently the same date that the new RDR regime begins) the rule for unisex premiums and benefits will apply – unless this ruling is challenged.

Lloyds Building – UK Insurance Market

On the face of it, it would seem fair that everyone is treated equally regardless of their gender. However, when risk is being considered (risk of death, injury, illness or accident) insurance companies have applied the logic of experience and actuarial number crunching. Lloyds of London is the worlds leading insurance market and will need to think through the implications of the ruling.

It will surprise nobody that women tend to outlive men. It will also not be a shock that young male drivers are more likely to have an accident and a more expensive one at that. I know that this is a long debated and joked issue – “why do women outlive men?” perhaps there is a correlation between life expectancy for males as a direct result of the stress caused from poor driving at speed? I have a rule at home that my daughters are not driven by anyone that has not held a full drivers license for a minimum of 12 months, I digress. As a result of the “evidence” (statistics) the price of risk can be calculated. Young men pay more for car insurance, older ones pay more for life assurance. Men tend to get a higher annuity from their pension pot because they are unlikely to live as long…most will invariably leave all or a part of that income to their spouse, which of course will be detrimental to many women that don’t have very large pensions of their own.

As a result of the ruling, the insurance world is thinking through the ramifications and to put it bluntly is in “chaos”. My own view is that all young drivers will now pay a lot more for car insurance. Men will get worse annuities, as a consequence so will their spouse. Men and women will probably both end up paying more for insurance of any description – after all there is no excuse quite like a legal one for taking the opportunity to whack up the premiums. Unless of course, someone stands up and says this is daft without sounding like a rant from a tabloid newspaper.

So we all lose. Equally – or not so equally, but we all lose.

We are a boutique firm of financial planners. We create financial plans designed to achieve a desired lifestyle. We will craft and implement your plan that will provide you with the greatest chance of accomplishing your unique goals based upon the values that you hold. Financial products are little more than the tools to achieve your required results
Call us today or visit our website for more information and to arrange a meeting

Lost in Translation: Insurance in chaos?Dominic2025-01-27T17:06:58+00:00

Barclays to cease Financial Advice

Barclays financial advisers have today been told that the Bank will no longer be providing financial advice and that their roles will therefore be ending. The reason given by Barclays is that the business of in-person financial planning is not viable. This is in the context of some very bad press and very hefty fine and the industry changes (RDR) being introduced. As a result Barclays will move to an execution-only online service (in other words, D-I-Y finances online).

Whilst many IFAs have long criticised the low quality of advice from Banks and few will be genuinely sorry to see them leave stage right, this does mark a signficant development. In essence, when a massive multinational cannot make sufficient profit and therefore run a sustainable business, this does prompt questions about the way in which financial advisers are being asked (told) to operate.

The sad truth is that those lacking wealth and financial security are the ones most needing to build a future for themselves that means that they are not reliant upon the State benefits. Something that we all probably agree is a key objective. Ironically just as product costs are being more closely scrutinised and reduced, the result is that fewer and fewer people can actually afford decent advice and there will be far fewer providing any from 2013.

We are a boutique firm of financial planners. We create financial plans designed to achieve a desired lifestyle. We will craft and implement your plan that will provide you with the greatest chance of accomplishing your unique goals based upon the values that you hold. Financial products are little more than the tools to achieve your required results
Call us today or visit our website for more information and to arrange a meeting

Barclays to cease Financial AdviceDominic2025-02-04T16:12:14+00:00

Another Big Mess

Let me be very clear. I do not like being ripped off any more than anyone else. It seems to me though that there is a sense in which compensation should be paid if the rip off was deliberate or just plain negligent, not simply because a risk that was known didn’t work out as hoped.

The FSCS who seem to be spending a reasonable sum advertising and encouraging people to complain are expected to annouce a £93m levy for 2011 to IFAs shortly – according to Money Marketing. That is money that my firm and many others collectively have to stump up to cover the cost of firms that have… shall we say.. got it wrong.

£93,000,000!

There is no opportunity for IFAs to contest this – we basically just have to roll over and cough up our share of £93,000,000. It makes no difference how good our firm is, the bill is simply split – like “going Dutch”.

The obvious conclusion – much of our fees actually go towards covering the cost of compensating people that have been poorly advised by lesser advisers, reducing our own profit and threatning the sustainability of our own business. This makes little sense, but there it is. Any suggestions?

We are a boutique firm of financial planners. We create financial plans designed to achieve a desired lifestyle. We will craft and implement your plan that will provide you with the greatest chance of accomplishing your unique goals based upon the values that you hold. Financial products are little more than the tools to achieve your required results
Call us today or visit our website for more information and to arrange a meeting

Another Big MessDominic2023-12-01T12:52:17+00:00

Click shows flaws in RDR

Today, Money Marketing report that award winning Click, an online “execution only” protection broker is closing its general insurance arm with a loss of 80 jobs. On the face of it this is no big deal to most of us – obviously sad for the 80 that have lost their jobs. However there is a bigger issue here.

In essence Click provided an option to consumers – to sort out life assurance and loans. All of it without any advice. Marketed oddly as a free of charge service (to find the cheapest providers from a limited range). Frankly I’m surprised that this terminology is really still used. We all know that people don’t work for free and that commission pays the bill. Anyway as a firm regulated by the FSA to sell life assurance, critical illness mortgage and income protection they provided an option for the DIY minded and less affluent consumer.

The fact that the company has had to close is concerning. The most obvious point to make is that the numbers were presumably all wrong and perhaps not well managed (I am not privy to the information of Click Financial Ltd, though accounting details would presumably be lodged at Companies House). I admit commenting with such little information is dangerous and I have no intention to harm Click. What occurs to me is that the business was presumably not valued properly – whilst commission may appear to offer significant rewards for sales, the business model and assumptions would seem to have been wrong. A free lunch does cost someone. Utlimately people do not wake up and decide to buy life assurance, its one of those things that needs to be highlighted and explained.

Why am I bothering with this? well in short, with the FSA pressing ahead with RDR, the main thrust of which is to provide fee-based advice which means that the “best advisers” (remaining) will be charging fees, the rest will either have to leave the industry of offer a service similar to that of Click. The main reason that most advisers are struggling to adapt to RDR requirements is failing to know how and what to charge. If you have been telling people that your service is free it is pretty difficult to place a price of free other than £0.

Advisers need to quickly get a good understanding of how much the work that they do is worth. (as do their clients). This will presumably have some relation to complexity, time, experience and the amounts involved. This is not normal territory for many of them, for a significant number (I hope not most) their business is response driven – something arrives by post or email and the adviser responds. The classic squeeky wheel gets the oil. This has nothing to do with service.

The closure of Click ought to be a warning to the FSA that the most obvious unintended consequence of RDR is that most people will be left to get advice from a Bank where there seems little real service proposition, more of a “buy as I think of it” approach. Banks provide statements and marketing leaftlets and little else (yes even the Gold card “services” are plainly hapless). The one advantage is that Banks are easier to regulate and fine (assuming that they don’t become insolvent) which would make life easier for the FSA – who have an unenviable job policing the system.

As someone that has operated on a proper fee system since forming my company in 1999 you would be forgiven for thinking that I believe that fees is the only way. I don’t and it isn’t. The issue is that people get good advice and that this is not swayed by a system that creates bias in the advice (different commission for different products from different companies). Many people cannot afford fees for even a basic level of service, yet invariably these are the people that most need good financial counsel – to help them become financially independent of the State.

RDR must be re-thought otherwise we are creating a rod for our own back where those without get even less and rely on the State even more and it would appear that these sums are not sustainable. Much like a business model that doesn’t work because the number are wrong.

We are a boutique firm of financial planners. We create financial plans designed to achieve a desired lifestyle. We will craft and implement your plan that will provide you with the greatest chance of accomplishing your unique goals based upon the values that you hold. Financial products are little more than the tools to achieve your required results
Call us today or visit our website for more information and to arrange a meeting

Click shows flaws in RDRDominic2025-02-04T16:12:15+00:00

Bank Complaints now over 1.25 million

The FSA have revealed that complaints about Banks and Building Societies increased by 5% in the first half of 2010, to a staggering 1,252,467. This is probably no surprise to anyone. IFAs have to issue clients with fairly weighty “reasons why letters” explaining the advice carefully, including illustrations and disclosure of fee/commission etc. This is as it should be (in my view) yet pop along to any high street bank and overhear a telephone call where a member of staff is happily providing advice to open and close accounts, move money to Cash ISAs and so on. There is very little evidence that any “fact finding” is ever done or they spend even a moment reflecting on what might be viewed as best advice.

A great wonder then that the inevitable result of the Retail Distribution Review seems to be to lump the majority of IFAs into the same bracket as the Banks and their single or multi-tied “advice”. I am still failing to appreciate that this is little more than an attempt to move IFAs into the massive institutions where they can be “better regulated”….anyone heard of Leehman, Halifax, Northern Rock, Norwich & Peterborough….. need I continue?

We are a boutique firm of financial planners. We create financial plans designed to achieve a desired lifestyle. We will craft and implement your plan that will provide you with the greatest chance of accomplishing your unique goals based upon the values that you hold. Financial products are little more than the tools to achieve your required results
Call us today or visit our website for more information and to arrange a meeting

Bank Complaints now over 1.25 millionDominic2025-02-04T16:13:24+00:00

What’s in a Name

Pretty much since the 1988 Financial Services Act Independent Financial Advisers have been staunchly defending the term “independent”. The FSA have rightly critiqued this, suggesting independence can only really mean providing impartial advice, considering the entire market. As we know, impartiality is pretty difficult to define in a real and lest face it “honest” way.

To my mind, impartiality is a difficult term to really use well. Let’s take the example of me. Well I have a vested interest in getting clients to invest money – I get paid more as the fund grows. I might actually lose money if I advise someone to surrender an investment or take their pension or repay their mortgage. This is where personal ethics come into play, because frankly it is a matter of context and subjective opinion whether one should take the pension now, cash in an investment or pay off the mortgage. There may be other valid factors, perhaps largely with attempting to help a client pay less tax. Sometimes it is obviously the right and best thing to do.

I concede that this is a difficult area for regulation, which wants to be precriptive (by nature) but is well minded enough to appreciate that this can lead to folly in practice. However, set in the context of long-term client relationships it seems entirely counter-productive to fleece wealthy, intelligent people in order to make a quick buck (I would suggest that it morally reprehensible, to fleece anyone regardless of wealth or education). I fail to see the sense in anyone doing so.

Surely the key is to create a scenario where the adviser is not better off for reccomending using company X over company Y or product A over product B. Ideally a client should pay a fee for the advice as this makes the financial product cleaner and cheaper, but not everyone can afford this, so I’m not against commission – when there is a truly level playing field.

The FSA want RDR to redefine independence – this will mean to be an “IFA” the adviser MUST consider all options – including unregulated products (for which there is no investor protection) and structured products (which exist to make a very lazy product provider very rich and the client poor if things don’t work out) as well as investment trusts (which are really shares) in which case why not just reclassify us as stockbrokers. Anyone that fails to do this, irrespective of the way that they charge, how many exams they pass, what their professional indemnity insurance covers and how much “bail out” money they hold on deposit – will not be permitted to use the term “independent”. They would have to use the term “restricted”.

Unless this badly thought through plan is altered, I would suggest that notions of a 20% reduction in the IFA community are likely to be woefully inaccurate – more like 20% left (if that). An IFA does not want to be a stockbroker (although I know a few that think they are) and they certainly do not want to sell rubbish products (at least those that I know). So at this stage it would appear that many may end up being labelled “restricted advisers” which is perhaps the most stupid term for someone that searches the entire regulated market and will be the same term used for Banks.

In conclusion I can see an outcome where a small number of IFAs exist that can smugly call themselves independent, advise only the wealthiest of clients and potentially be about as impartial as some of our daily newspapers.

What a complete mess.

We are a boutique firm of financial planners. We create financial plans designed to achieve a desired lifestyle. We will craft and implement your plan that will provide you with the greatest chance of accomplishing your unique goals based upon the values that you hold. Financial products are little more than the tools to achieve your required results
Call us today or visit our website for more information and to arrange a meeting

What’s in a NameDominic2023-12-01T15:31:59+00:00

Schmarketing

The changes that are being imposed on IFAs by the FSA as a result of RDR that is due to begin from 2013 are wide and varied. Perhaps the most obvious question to ask is “at the end of all this, who will use an IFA?”. Therein lies a question prompting a plethora of responses and business models. An equally important question is – who will not be able to use an IFA? (because we will all be charging fees). The short answer is – most people and probably anyone that doesn’t pay 40% (or more) income tax. This is of course an issue that I have had at the heart of the business since I formed it in 1999, but new for most IFAs.

So I was intrigued by one of todays PFS topics about segmenting your client bank a strategy apparantly an outcome of RDR. I can’t stand being put in a marketing box and frankly doubt anyone else can either. Yet marketeers continue to attempt to redefine what we all know by meeting people and frankly I think that most of it is complete hogwash. So much is read into consumer spending and responses to telephone surveys that ask questions like “do you have a private pension?” yet I dare say that most respondents are fairly flippant in their answers… “Do you have any investments?” asks the market researcher… something tells me that I’ll say what you want to hear or say no, just to stop you from flogging me something.

Surely people are alike and different. We are much more complex than the surveys would have us reduced to. Who would I prefer to advise? well surely its obviously people that WANT my help and can afford to pay for it. People like my existing clients, who knows people like my existing clients?… my existing clients. Surely that is the marketing (based upon delivering results and service) that any business needs.. or am I being too simplistic?

Anyone fancy a mailshot?…. give me strength.

We are a boutique firm of financial planners. We create financial plans designed to achieve a desired lifestyle. We will craft and implement your plan that will provide you with the greatest chance of accomplishing your unique goals based upon the values that you hold. Financial products are little more than the tools to achieve your required results
Call us today or visit our website for more information and to arrange a meeting

SchmarketingDominic2023-12-01T15:32:06+00:00