Question
This is more prehaps a comment and a request for you to write an article rather than a question. Like you I am concerned about paying the correct amount for the same advice but your recent articles on paying for advice, trail commission etc etc tend to concentrate on UT's/OEICS rather than Life Products where the differences can be somewhat starker and your article on FA's who get paid too much struck a chord.
We recently looked at a particular vehicle to take steps to protect a substantial amount of a family members capital from IHT. We saw both a tied and an IFA. One was going to charge a commmssion of c£30k which was no negotiable, the other would rebate 2/3rds of the commission back into the investment. Also the latter had access to a wider pool of investment opportunities. The advice offered and given was the same, the big difference was in their personal skills and the personality of the individuals involved and how they came across.
To me its a no brainer, but its the family members' capital and their choice. This is not dishonest, but it serves to illustrate prehaps that there are some people out there who whilst giving good advice are raking it in and preying on a certain type of person. I would certainly have to ask why, if they do have such good personal skills, are they joining a tied company but your FA article gives the answer and I also beleive the parent company takes ownership of the 'FSA red tape' issues. I only wish they were more transparent about where such a large amount of commission is going as it certainly isnt all going to the adviser as if an IFA can give the same service for 1/3rd the cost so can they!!!Answer
Interesting comments which highlight a very important point – the reason some financial advisers can ‘get away’ with earning sky high commissions is because of their personality. Someone with a strong, likeable, personality is more likely to be able to pull the wool over a customer’s eyes than someone who’s rather dull. It doesn’t mean you should use them though. And in my experience that likeable personality might well turn to indifference once they’ve completed the sale and pocketed the commission (it’s not just financial advisers, the same is true of all sales-based professions).
As for commissions, £30,000 is simply ridiculous. It’s exceptionally rare that any financial advice should cost more than a few thousand pounds in the hands of a fair, fee-based adviser. Advisers tend to argue that the higher the sum involved, the greater their potential liability if things go wrong and they end up having to pay fines or compensation – so they should charge more. While there’s some justification for this, if an adviser provides good, robust, advice then the likelihood of incurring future liabilities should be small. While I think it’s fair to charge a modest risk premium on larger sums, there’s no way that fixed prorated remuneration such as commission or percentage fees is fair when investing large amounts of money.
Do tied or independent advisers charge more? It really varies. In your example the independent adviser was cheaper, but it could easily have been the other way round. I personally wouldn’t touch a tied adviser with a barge pole. I’m sure there’s some good ones out there, but why buy from someone who can only sell products from one shelf? At least an independent adviser can choose from the whole store (although there’s no guarantee they’ll be honest or any good).
Where an adviser, tied or independent, works for a company then it’s normal for the employer to take a proportion of any commissions/fees earned to cover costs such as compliance, administration support and marketing etc. If an adviser works for themselves they’ll incur these costs anyway. In fact there are plenty of examples where independent adviser companies or ‘networks’ have been far too generous to their advisers, resulting in the companies eventually going out of business.
There’s quite a lot of information on the site regarding excessive commissions on insurance- based investments, but I agree, an article would help bring all this together. I’ll write one this week.
I’d urge your family members to get a quote from an independent adviser who charges an hourly fee and rebates all commissions. I’d expect the advice to cost them significantly less than the existing quotes.
This is more prehaps a comment and a request for you to write an article rather than a question. Like you I am concerned about paying the correct amount for the same advice but your recent articles on paying for advice, trail commission etc etc tend to concentrate on UT's/OEICS rather than Life Products where the differences can be somewhat starker and your article on FA's who get paid too much struck a chord.
We recently looked at a particular vehicle to take steps to protect a substantial amount of a family members capital from IHT. We saw both a tied and an IFA. One was going to charge a commmssion of c£30k which was no negotiable, the other would rebate 2/3rds of the commission back into the investment. Also the latter had access to a wider pool of investment opportunities. The advice offered and given was the same, the big difference was in their personal skills and the personality of the individuals involved and how they came across.
To me its a no brainer, but its the family members' capital and their choice. This is not dishonest, but it serves to illustrate prehaps that there are some people out there who whilst giving good advice are raking it in and preying on a certain type of person. I would certainly have to ask why, if they do have such good personal skills, are they joining a tied company but your FA article gives the answer and I also beleive the parent company takes ownership of the 'FSA red tape' issues. I only wish they were more transparent about where such a large amount of commission is going as it certainly isnt all going to the adviser as if an IFA can give the same service for 1/3rd the cost so can they!!!Answer
Interesting comments which highlight a very important point – the reason some financial advisers can ‘get away’ with earning sky high commissions is because of their personality. Someone with a strong, likeable, personality is more likely to be able to pull the wool over a customer’s eyes than someone who’s rather dull. It doesn’t mean you should use them though. And in my experience that likeable personality might well turn to indifference once they’ve completed the sale and pocketed the commission (it’s not just financial advisers, the same is true of all sales-based professions).
As for commissions, £30,000 is simply ridiculous. It’s exceptionally rare that any financial advice should cost more than a few thousand pounds in the hands of a fair, fee-based adviser. Advisers tend to argue that the higher the sum involved, the greater their potential liability if things go wrong and they end up having to pay fines or compensation – so they should charge more. While there’s some justification for this, if an adviser provides good, robust, advice then the likelihood of incurring future liabilities should be small. While I think it’s fair to charge a modest risk premium on larger sums, there’s no way that fixed prorated remuneration such as commission or percentage fees is fair when investing large amounts of money.
Do tied or independent advisers charge more? It really varies. In your example the independent adviser was cheaper, but it could easily have been the other way round. I personally wouldn’t touch a tied adviser with a barge pole. I’m sure there’s some good ones out there, but why buy from someone who can only sell products from one shelf? At least an independent adviser can choose from the whole store (although there’s no guarantee they’ll be honest or any good).
Where an adviser, tied or independent, works for a company then it’s normal for the employer to take a proportion of any commissions/fees earned to cover costs such as compliance, administration support and marketing etc. If an adviser works for themselves they’ll incur these costs anyway. In fact there are plenty of examples where independent adviser companies or ‘networks’ have been far too generous to their advisers, resulting in the companies eventually going out of business.
There’s quite a lot of information on the site regarding excessive commissions on insurance- based investments, but I agree, an article would help bring all this together. I’ll write one this week.
I’d urge your family members to get a quote from an independent adviser who charges an hourly fee and rebates all commissions. I’d expect the advice to cost them significantly less than the existing quotes.
Read this Q and A at http://www.candidmoney.com/questions/question155.aspx
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