The FSA wants advice to be offered in a "more cost effective" way
The city watchdog, the Financial Services Authority (FSA), is proposing radical reforms to the way we buy our financial advice.
At present, many financial advisers rely on commission paid by product providers, and the FSA says this can lead to mis-selling.
It wants to prevent advisers from calling themselves "independent" if they receive commission.
How would you like to pay for financial advice?
Are you prepared to pay a fee up-front?
Perhaps you would prefer your adviser to be paid commission from the product provider.
Do you trust your adviser to be truly independent?
We asked for your comments, a selection of which are below. The debate is now closed.
With over 30 years' experience in financial services, I recognise that the FSA is attempting to eliminate malpractice and to protect the consumer. No one wishes to condone commission bias or target-driven adviser behaviours. In practice few advisers will offer a truly whole of market product range and most will ignore those providers not paying commission. Any move towards greater professionalism must be applauded, but in the eyes of the public, I believe all should be called salesmen rather than advisors to correctly position the consumer in any interaction. I do fear that the FSA is in danger of overlooking the needs of the majority of society requiring low cost advice (and a recommendation) where the economics will normally demand a tied relationship. The FSA's proposals risk advice in the future being solely the province of the higher net worth as they offer bigger ticket values and are more prepared to pay upfront fees.
I am a solicitor and also a former qualified IFA and tied agent. There is good and bad in all professions. We have had regulated advice for over 20 years now and most IFAs are fair in all their dealings with customers - particularly the small firms with a core 100 clients who they have served for 10 years plus. Unfortunately it is some of these firms who will be culled potentially as a result of the FSA's proposals. As always, it is the minority who make the headlines for poor selling but the majority have to pay for it. The FSA's proposals will mean a large segment of the public will not get advice at a time when retirement advice becomes a necessity to avoid poverty in old age. The FSA seems to think a magic half-way house of 'guidance' will serve the masses who won't pay a fee. But people find financial services too complex - they need that firm recommendation to do the right thing. The vast majority, unfortunately, do not listen to Money Box or read the personal finance pages of the Sundays. Tied advice already subject to suitability controls as well as commission and charges disclosure is better than no advice at all. The FSA is treading a dangerous path.
Have distribution bonds died a natural (?) death? The one I have had for a number of years has been put out to grass and, consequently, no action was taken by any management (if any) to make a temporary transfer to a safe harbour during the recent downturn. Consequently, a high percentage of we 'li'l ol' ladies have has gone right 'down the drain'. Obviously, the management are still getting paid but for what?
Our financial adviser told my wife and I that our portfolio needed revision, and that his firm was moving to an hourly fee system rather than a commission system. He explained that investments were sold to advisers at two prices - one if no commission was paid and a higher one paying commission. If we agreed to pay the adviser direct, some advantage would thus accrue. We thought initially that this was a good idea and accepted. However, there have been two problems. Firstly, we could not be given figures comparing the old commission-based costs with the new hourly rate costs. Secondly, no estimate was available of the likely number of hours to be charged per annum. The hourly rate is £200 - which seems extremely high. We would hesitate to pay any other professional advisers at this level, simply because we do not have the resources. To have our quite modest portfolio re-jigged has cost us a "special-rate as existing customers" three hours (with VAT to pay on top) plus a percentage of the total sum re-invested. It may well be that we have benefited by this arrangement but our adviser has been unable to prove it and it does appear that the service is expensive. The young are frequently being encouraged to make provision for their old age, but at £200 an hour how many can afford to?
I have been in this industry for the past 17 years going from a tied agent to an IFA and now an independent mortgage adviser and for the first time I heard some acknowledgement by the authorities of a major fact: the public does not like paying for financial advice. I also understand that millions of taxpayers' money will be spent in providing free financial advice to the public. Instead of this why oh why don't they spend my money as a taxpayer towards educating the population about financial advice and products? I would gladly give my time to show members of the public how through sophisticated software I reach my conclusions following research of the whole mortgage market and the analysis that I carry out to recommend protection products. Only when educated properly will the general public appreciate the reason for paying a fee for independent financial advice. I have always associated education with the question WHY. When asked such question would require an educated answer back. Think about that!
Louis d'Espagnac, Chief Executive, The Mortgage Explorer
If the FSA do not sort things quickly, far more people will go down the DIY route of execution-only. There seems little need for tied agents to charge anything.
Geoff Fossick, Middlesbrough
I'm not an IFA but do work in this market. These proposals will be great. The current minimum qualification FPC3, which is a joke, will be raised to something resembling professionalism and competence. Secondly, in my experience, bank staff are sales people and nothing else. They are heavily targeted, which puts pressure on them to sell any product to anyone. They may be salaried but still have targets: very often the salary has to be validated with sales/commission. There are bad ones out there but most IFAs are in a position to be able to afford to give advice if no commission is generated. The proposals will be good because the level of remuneration will have to be agreed at the beginning of the advice process, even if it is paid from the product. This should avoid IFAs taking commission of £70k when advising on a £1m investment bond (not unusual). £70k simply isn't reflective of the work involved. Unless the client is naive they would realise this and would not agree to this amount.
Access to a number of financial products is only available to an individual dealing through a financial adviser; you can buy a National Savings Certificate directly, but not a SIPP. Asking to pay on an entirely fee-based agreement raises problems; the charges made may seem unreasonable. Look at the unpopularity and perceived unfairness of fees charged by solicitors and architects. And do you ask for the whole of commission to be repaid to you or only part? In the latter case you are still giving the IFA an incentive to seek out the best commission. In my personal experience you just have to hope that you have made a good choice of IFA, and accept that "what it costs is what it costs". And read the Financial Press, and listen to the BBC.
The current arrangement is to the benefit of the IFA and the financial sector, not the consumer. The recent requirement for IFAs to offer advice by one-off fee instead of commission is no incentive when the initial charges levied by the financial organisation against your investment is the same. The ideal fee charged should reflect the quality of the advice given. This could be achieved by the IFA getting a commission based on the annual profit of the investment during over the life of the product. A more simple solution would to ensure that all financial products are available to all brokers, including those who rebate the commission to the consumer. We would then have real choice and competition. This, of course, will not happen as we have toothless regulation and powerful self interest in retaining the cosy relationship between IFAs and the financial institutions.
Roger Harris, London
No IFAs are truly independent, and the FSA is naÔve to believe they are. They choose from a very limited range of mostly insurance-based products, invariably those which pay the highest commissions. In my experience, their product knowledge is also technically limited, and firms/individuals change or disappear over time. In the course of my career (salaried) as a tied agent of one of the major banks, I met many savers/investors who had been saddled with entirely inappropriate insurance products by so-called independent financial advisers who were no longer in business. Investors who seek advice from tied agents know in advance what they are doing, and some tied agents are salaried and therefore have no axes to grind, and they do recommend products offered by competitors, e.g. National Savings, and other bank/building society offerings.
M R Lovell, Rhydcymerau, Llandeilo
Do you seriously expect the changes to the name "financial advisers" (again) will mean that an IFA will advise a client that a supermarket will do straight life cover cheaper than he can? I have been a retired tied FA for ten years. I never met an IFA that dealt with more than 6 companies. And frankly they could just bamboozle a client any time. Most clients are financially simple, I blame the schools. You try explaining compound interest to some that can hardly add up.
David Vinter, Louth
The comments we publish are not necessarily the views of the BBC but will reflect the balance of views we have received. It is helpful if contributors state if they work for any organisation relevant to an issue discussed. Readers should form their own views on whether messages published represent undeclared interests, or views prompted by a common source.