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FSA to consumers: RDR won't make advice more expensive

by Michelle McGagh on Jun 03, 2011 at 09:21

The Financial Services Authority (FSA) has shown its commitment to the changes outlined in the retail distribution review (RDR) by promoting the regulatory overhaul to consumers.

The regulator has set up a page on its website entitled Changes to the way you receive advice about investment which explains independent advisers' role, adviser charging and the move to increase qualification levels.

It states: ‘The way you receive investment advice from financial advisers is changing. We have been working with firms, advisers, consumer groups and industry experts to improve how investment products and services are recommended to potential investors.’

The FSA explains the responsibility of independent advisers, saying they ‘must consider all relevant options…and do so free from any restrictions (such as working with only a select group of product providers) or bias (such as being paid by commission)’.

Although it does not use the phrase ‘adviser charging’ the regulator details on the site that the RDR aims to ensure ‘advisers tell you how much their services cost and agree with you how much you will pay’.

It stresses the point that ‘advice is not currently free’ and that advice will not cost consumers more as ‘the price you currently pay for advice is often hidden within the charges of the product that you buy, that price is currently set by the product provider, not you – the customer’.

It goes on to say: ‘You will receive advice from competent, trained professional who subscribe to a code of ethics ensuring they act with integrity and treat their customers fairly.’

The regulator does not spell out explicitly what level of qualifications advisers will have in 2013 but said: ‘Every adviser will have to meet new consistent professional standards. We are introducing an overarching code of ethics for investment advisers, ensuring they act with integrity and treat you fairly.

‘We have modernised and raised the level of qualifications advisers must have, and improved how they keep their knowledge up-to-date.’

92 comments so far. Why not have your say?

Darren Lloyd Thomas

Jun 03, 2011 at 09:38

Yep, I agree with the FSA on this point and congratulate them on this public statement. I am fed up with battling against the perception that advice on commission is 'free'. Good for them in actually coming out with this statement and actually backing us in terms of qualifications etc. I actually feel that the fee based model works out more cost effective for clients with assets, as transparency leads usually to fairness. However, I reckon the lower end of the market will end up paying considerably more for advice (if they see an IFA) as cross subsidy will no longer be a viable option for businesses.

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GN Franklin

Jun 03, 2011 at 09:40

And + 20% VAT won't increase the costs to a client?

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Peter Riches

Jun 03, 2011 at 09:42

They are back in their ivory tower, looking down on an ideal world. The cost will increase for the majority of clients.

Although still working on the final offering I anticipate that the base cost for advice will rise 25% in 2012 and then level off while the effects of the changes are absorbed.

The main cost we all have is, well yes you guessed, polishing that tower, which has yet to convince me that it understands the consumer and what they need from this.

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You must be joking

Jun 03, 2011 at 09:46

I wonder how long it takes to get the sand out of their ears in the morning?

As with anything, certain costs to consumers willl fall and certain costs to consumers will rise.

As we no longer have an 'bias' (did we ever?) a typical example would be the inclusion of a Gilt fund in a portfolio... previously we never received any trail commission (bad word) in respect of this part of the investment, but now we charge an ongoing fee for providing ongoing advice (querterly reviews, changes to asset allocation, rebalancing etc) so the total cost of this Gilt fund has INCREASED.

Should the FSA be issuing misleading information? Aren't there advertising standards they have to adgere to? Shouldn't all comments be balanced and explain the pros AND cons?

Or is that just the IFA community?

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Roy Durrant

Jun 03, 2011 at 09:48

The way the FSA have worded this page really angers me. The way it implies anyone that offsets their fee by commission will be "biased" and that the "price you currently pay is often hidden within the charges of the product". What do the KFD and Illustrations point out everywhere. What do we point out in our RWLs. We can hardly hide the cost of advice. This wording just shows the level of contempt the FSA has for IFAs. I really can't understand thier stance towards us when only yesterday the head of FOS was complimenting us for the very low level of complaints against IFAs. Perhaps they should be concentrating their fire on those that generate the highest level of consumer detriment and complaints. In fact if you took out that famous "fee only IFA" that generated the majority of IFA compaints our share of the overall level of would be miniscule.

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Graham Hort

Jun 03, 2011 at 09:49

I don't know if I keep missing it but I haven't seen what happens to those taking out Tax Exempt Savings Plans @ £25 pm or those who save regularly into ISAs, eg £100 pm. bearing in mind that cross subsidy will not be allowed. The only answer I get is don't bother with those type of savers. Yet I thought that they were the ones RDR was originally set up for

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Jonathan Kirby

Jun 03, 2011 at 09:54

So when the vast majority of people find that they can no longer get any independent advice as they cannot afford this brave new world which has been dreamed up, they will end up getting no 'advice' from banks but being sold very expensive poorly designed products and encouraged to sell the perfectly good ones they already have.

Some may try and go it alone and end up buying at the pewak of whatever bubble is going at the time (tech., property, bonds etc. etc.).

Or leaving money in cash that is not even getting a return near inflation.

No extra cost? It will cost them very, very dearly.

Cloud cuckoo land sums it up.

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david gardner

Jun 03, 2011 at 09:57

I think the problem is there will be no 'free' advice or service. VAT will be charged as well and non essential matters will be charged for, making it difficult for the clients to see any value for the services being offered.

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John Phillips

Jun 03, 2011 at 10:00

FSA and The Banks are hand in hand with one aim and that is to get more people reliant on Bank advice. Do you see the bank sales model ever changing? I don't!

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Jun 03, 2011 at 10:00

Im still not convinced there will be enough HNW clients for you chartered new model lot,people do not have enough disposable income to fund the type of fees we will be expecting for advice and ongoing servicing.

From what I can see is everyone appears to be doing nothing but debate bringing costs and charging down,for gods sake we are in business to make money not provide charitable advice.

Add to the fact you are liable for the advice personally and for a very long time you should be looking to increase charges and costs

Until IFA's and the industry wake up to the fact that there will not be enough HNW arouind then many will fail under RDR,the industry needs to up the the costs and charges to clients to make business long standing and profitable.

Im sick and tired of people bleating on about fees and fee based models,what a load of crap,its nothing more than a different name for commissions.Spoke to a prominent accountant IFA the other day who went on about fees and his fee based model,as it turned out it was his terminology and the reality was that he is still taking commssion.I wonder how many of the new Model lot are doing the same but preaching how good their business models are on this site.

What the FSA fail to say above is that people could potentially be hit with VAT further down the line,someone explain to me how that makes advice cheaper.

This passporting looks more favourable by the day,if its a viable option and its looking like it is then Ill be laughing all the way to the bank,my clients will get exactly what they did before and Ill be rid of the never ending headache of reading and acting on the crap cascaded from the ''Hectars house''

As for the long stop there is a thing called ''asset protection'' I suggest IFA's consider it as a course of action to protect your assets when Hector and friends come knocking at your door

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Mike Hardy

Jun 03, 2011 at 10:01

Few would argue that there is an extraorinary cost to the industry of implimenting the RDR. Anybody taking a contrary position has failed to grasp what is going on. Is anybody agruing that the stageringly enourmous cost wont be passed on to the consumer? I think it will and I think advice will cost the general consumer a lot more than it did in the past. IFAs like me are extremely focused on the cost of running businesses and every last penny of cost is taken account of when calculating how much it cost to deliver a service. This level of scruting of cost did not exist to the same extent prior to the announcment of the RDR. For those that attend road shows you will know that we are all being encouraged cater for the top end of the market ie those that can afford to pay our fees. Businesses that are desined to cater for the top end will of course be more expensive. A caveat to this is that consumers at the very top end might find the cost to them is slightly less as there will be many IFAs in their market space.

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Martin Bamford

Jun 03, 2011 at 10:01

The lack of understanding surrounding this subject continues to amaze me.

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The Liquidator

Jun 03, 2011 at 10:03

The FSA have generally frowned upon IFAs for not being clear with clients as to costs, and then they come up with this baloney. The fact is that the "larger investor" will pay less, and the "smaller investor" , which is the majority,will pay more, or be priced out of the advice market. That is the only commercial reality for IFAs post RDR. Personally I find it odd when the general social trends are more towards fairness, that this initiative actually favours the rich and penalises the "less rich". Its very unlikely I will be helping someones silver haired mother choose her Cash ISA post RDR, as I do now.

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Jun 03, 2011 at 10:05

Cross subsidy will effectively disappear, so there will be clients that will have to pay more for advice. Furthermore, currently an adviser might recommend a fund that has an amc of say 1.5%, 0.5% of this amount may well be paid to an adviser as trail. With the introduction of adviser charging, come 2013 clients will still have to pay the 1.5% amc but will also have to pay an adviser charging fee for review - how therefore is the client not worse off? I too feel the FSA are misleading consumers.

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Simon Mansell

Jun 03, 2011 at 10:06

So the FSA is telling consumers: RDR won't make advice more expensive?

Is this because the FSA feels it is not only above the law but it is above the truth. Just look at the facts:

Oxera, the market research firm employed by the FSA to assess the costs and benefits of the changes, expects the net present value of the compliance costs to the industry to reach between £1.4 billion and £1.7 billion. The FSA’s own cost benefit analysis you will see that they now estimate the 10 year cost as £3.55bn!

AVIVA predicts by 2013 IFA numbers will fall to 10,000. The economics of supply and demand is bound to force up consumer costs as independent adivser fall in number and increase in qualification level.

David Hazelton of Tax Incentivised Savings Association(TISA) 30/10/09: The RDR could be detrimental to consumers both in terms of higher product charges and an increase in the cost of advice, warns the Tax Incentivised Savings Association(TISA). Implementation costs for the RDR are being "seriously underestimated" and product charges will consequently have to be raised.

On 02/12/10 Julie Patterson IMA director of authorised funds and tax says: IMA says RDR won't cut charges. The Investment Management Association says it is “naive” to assume the FSA’s retail distribution review will drive down overall charges.

On 27/01/11 Ernst & Young has compiled a paper on the impact of the RDR. It says banks would have to charge £200 an hour for advice just to recover their costs. Director of financial services (insurance) Malcolm Kerr says: “I am not convinced that the IFA brand is sufficiently well known among consumers to justify the additional risk and cost of the independent route.”

24/03/11 Friends Provident: Announced that the retail distribution review (RDR) has meant it is no longer viable to market or develop new investment products.

31/05/11 Paul Kennedy head of trusts and tax planning at Fidelity International said: There is a risk that investors will end up paying more tax on their investments which, coupled with the monster that is VAT, would leave them out of pocket.

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West Country

Jun 03, 2011 at 10:07

The expectation of the FSA is clear. It is undeniable that there are additional costs of reaching the qualification levels, in business downtime and exam/training material fees. There is also the ongoing and increased regulatory overhead.

So if there is no additional cost to the consumer, we have to absorb the extra costs ourselves in lower profit from the business activity. There is nowhere else from where the additional costs can be met.

The writing has been on the wall for some time. The next logical step in adviser charging is that we will be told what level of fees we are allowed to charge.

Free market, or command economy?

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Jun 03, 2011 at 10:08

l'm not convinced that there will be sufficient IFAs around in 2 years time to provide much if any advice. Especially for the market that the banks will now gleefully hook in to their branches.

And yes, VAT is an issue that is often overlooked.

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Phil Sheppard

Jun 03, 2011 at 10:09

I agree with Martin, many IFAs still seem to be barking up the wrong tree.

I think the ultimate losers will be the small value clients who need good advice far more than wealthy clients.

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Jun 03, 2011 at 10:16

Not more expensive just less accessible!

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Mike Hardy

Jun 03, 2011 at 10:17


Your stament is not inconsistent with what many of us are saying


Can you elaborate please

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Alasdair Sampson

Jun 03, 2011 at 10:19

No one likes change.

But you guys live in an outdated world of commission, you really do. You and your clients will adapt to fees instead of commission very very quickly. And you will rapidly find huge benefits in it too.

Why can I say that? Well, because 20 odd years ago the legal profession in Scotland thought the planet would stop turning when our Law Society decided to scrap scale fees for all sorts of work including conveyancing long seen by the public as the milk cow, but in fact it cross subsidized a lot of stuff lawyers did cheaply or pro bono. Yeah, yeah – make all the comments you like about cheap lawyers and pro bono!

But the simple matter is that you guys do exactly the same as we did. It never fails to amaze me but every single one of my IFA clients does precisely what I used to do before scale fees disappeared. You all do it – provide huge amounts of time to clients and don’t charge for it. I know the argument – your providing a service to a client. And so you should but you should charge for it.

After scale fees disappeared and I started to charge for everything I do on a time cost basis, I very quickly realised that the message I had previously been sending out was that if couldn’t/didn’t put a price on myself then the clients simply did not value me or the advice I gave.

What happened when we scrapped scale fees was that there was a period of turmoil but very quickly the profession adapted and learned to become very much more efficient in how it delivered its services and it started to charge for everything. Clients learned not to waste your time as that cost them money, and they rapidly learned to value the adviser and the advice.

No, before any of you bat me with a stick, I amn’t saying you are inefficient but we could all always be keeping an eye on the mechanics of how we do business.

One of the drawbacks of the commission based model is that the costs are not clearly visible to the average client and many see them in the way my clients used to perceive scale conveyancing fees.

Yes, I know the commissions are stated in the KFD and in your RWL etc etc – but as we all know clients don’t read them. At least judging from the complaints I handle for both consumers and for IFAs, and of course both the FSA and the FOS assume that the average client doesn’t have the intellectual rigour and mental stamina to be able to read and understand more than one sheet of A4.

Competition will immediately kick in and sure there will be fee cutting at the lower end of the market – and frankly clients will learn that you get what you pay for.

But for the vast majority of the market, although cost will of course be an issue, the service you individually provide to your clients will not be particularly price sensitive.

My guess is that more of you will actually earn more from your business that you are at present and that very shortly you will look back and wonder why yu didn’t change earlier.

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michael bates

Jun 03, 2011 at 10:23

The FSA continues to tell the half of the story that it prefers to. Oh how the industry has persuaded the ignorant! The product producers must stand accused of shoving the cost of selling their products onto the consumer. It will all end in tears for them, the regulator, the brokers (remember that status anyone?) but most importantly - the consumers will be in the main either unadvised or "sold" which strangely used to not equal "best advice". That is, unless there is the radical re-think that the RDR badly needs to be a comprehensively acceptable move in the right direction.

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Richard Williams

Jun 03, 2011 at 10:23

Feeble Sub-Standard Authority

I quote - "‘the price you currently pay for advice is often hidden within the charges of the product", I'm sorry but do we not disclose these as part of the Illustration? Or is the FSA saying that we hide this? Maybe the FSA ought to look at the FOS statement on IFA complaints, obviously we are NOT hiding costs, what possible reason could we have to do that if we want to keep our noses clean. Who are the jokers that wrote this? Another disastrous communication from the Feeble Sub-Standard Authority.

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Ex EJ Adviser

Jun 03, 2011 at 10:29

I think the drive to make advisers more professional is excellent - other changes that RDR will dictate are misguided as highlighted by this article.

For decades we have been required to disclose commissions to clients - the FSA have been responsible to ensure that this was happening. How can they now say that there have been "hidden" costs that the consumer is not aware of. If they knew this was happening then why did they not clamp down on advisers/companies by demanding disclosure? The reality was that the industry found a way around disclosure and most likely will find a way round how fees are dealt with and the FSA will not be able to regulate it just like they have not been able to regulate disclosure.

The FSA say that they "will have" systems in place to "ensure" that customers will be treated fairly. I thought we were already working under that regime? If we weren't then why did the FSA promote to all and sundry that we were? Again the reality is that the FSA can talk about treating customers fairly until the cows come home but the industry will continue to push the boundries of what is "fair". It is so subjective that it is nigh on impossible to enforce.

The FSA implies that the client will be able to negotiate a fee by "agreeing with the adviser" above how much the charges will be. This has always been the case but now the FSA is expecting advisers to improve their skills and be willing to compromise on what they feel they are worth in the market. They also expect the average client to all of sudden become hagglers. It just does not make sense. Increased professionalism and regulation will simply mean increased fees.

The Government must have a much greater juristiction of the FSA. I fear that advisers will eventually have to take legal action against regulatory decisions and statements because what is being said and done by the FSA just do not seem to be for the general public's benefit and will do more harm to society's financial well being than good.

I say all this with the knowledge that come 2013 my business will automatically become more profitable because I will be able to justify greater cost to the client because of all the new requirements. My clients will get the same service but will have to pay more! Any other business owner will most likely be thinking the exact same thing. This is great for our businesses but not right for the consumer.

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Nicola Weaver

Jun 03, 2011 at 10:32

The FSA are pushing IFA's to change their model and justify the fees they are charging, as a result IFA's are busy developing their service proposition, as a result the majority of the work they do for a client may well result in 20% VAT payable by the client.

The abolition of commission and the introduction of adviser charging for an insurance company means the abolition of I-E. This could result in a 20% increase in charges for the client in respect of a whole range of insurance based products.

The FSA haven't decided yet decided whether a platform is a provider or offers administration services, then 20% VAT would be payable by the client.

Adviser charging could affect taxation on encashments from bonds and collectives. If the annual fee agreed by the client comes from the investment itself, then it is treated as an encashment from the investment which means it could be subject to income tax from a bond and CGT from a collective. Therefore the client may have to pay an additional 20% from a bond for a hrt and 28% from a collective where the exemption has already been used.

In conclusion, IFA's overall may well be charging roughly the same pre & post RDR, but the cost to the client through no fault of the IFA could be huge.

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Alan Lakey

Jun 03, 2011 at 10:32

Yet more rhetoric from a sad parody of a regulator.

Reminiscent of Pravda, laughingly translated as 'the truth'. Feed the millions the dodgy party line and eventually most of them will believe it or grudgingly accept it.

If in my advice I studiously ignored the research and decided that my own version of 'truth' suited my purposes better I would be run out of the industry.

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Mark Dennison

Jun 03, 2011 at 10:33

A tick and a cross for the FSA, on behalf of financial advisers.

The tick is for promoting the need for advice and the channels to access it. Brilliant. Free marketing for the industry.

The cross is for the smoking mirrors regarding fees. RDR gives advisers control over charges. Is the FSA expecting advising firms to carry the cost of education, research, support, infrastructure, etc? If not, as all these costs are incremental to current levels, the presumption is the client will pay. And rightly so. The ultimate aim of the business must always be to be profitable (which the regulator is mindful of in any event, as a failing firm is a direct candidate for the FSCS.)

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Phil Sheppard

Jun 03, 2011 at 10:33


In particular, I think the VAT issue is still misunderstood by many IFAs; therefore, the fees vs commission arguments are skewed - the method of payment is largely irrelevant in most cases.

I worked for my fellowship because I wanted to be a good adviser, I needed the knowledge to advise clients properly. I have gained immensely from the knowledge gained, including financially. So I don't accept the 'qualifications cost money argument' when taken over the medium term.

The cranking up of the file documentation and advice justification by the FSA is what is making it difficult to advise small clients, I'm not a registered Charity and cannot afford the losses involved.

So for me, the problems exist in a different area to most of the arguments being put forward by IFAs.

I hope that answers your query.

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Brian (a different one, there seems to be a few of us)

Jun 03, 2011 at 10:40

To @ Silver.

Asset Protection works right up until the divorce..or need for Care in later life when it's seen as..well, we all know. Please don't cloud the clear Longstop issue with the suggestion it's possible to hide/move assets.. the fact remains advice costs... long after you've stopped giving it.

For the avoidance of doubt, the Longstop isn't a legal shield to hide wrong doings behind, it's legal property with which to defend against a star chamber style judgement from the FOS on a loss that doesn't actually have to happen and based on hearsay evidence. No wonder those not involved love the FOS, it circumvents nearly every reason to have a proper judicial system built up over centuries.

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Martin Bamford

Jun 03, 2011 at 10:42

@Mike Hardy

I'm seeing three things being repeated here which are questionable at best.

Commission is VATable in the same way that fees are VATable. It's the nature of the service that counts. If intermediation remains the predominant service, VAT will not apply to adviser charging post-2012. Likewise, if advice the predominant service then VAT could currently apply to commissions.

Adviser charging and the RDR does not force any IFA to charge a fee for advice. They can continue doing this 'on spec' (if they like, whether this makes business sense is another debate) and only charge for 'implementation'.

In our experience, adviser charging (the cost of our advice and implementation 'fees') is cheaper than the equivalent commissions charged by most of our peers.

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Jonathan Plant

Jun 03, 2011 at 10:51

Accepting all that has gone before, we have to take into account all our costs is determining our fee basis. Regulation is a significant cost. RDR will not increase our costs. The regulator therefore has undertaken not to increase our regulatory costs post RDR. You heard it here first !

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Graeme Ferguson

Jun 03, 2011 at 10:52

Some great points as usual. I read the comment from silver regarding the accountant IFA and really fees is just a different badge for commission... some IFAs really havent grasped this simple fact.

Your main areas of issue will be new regular pension/investment contracts with no attached funds under management.

You should have a look at cost of services documentation for some of the major firms who think commission is so so bad... if so bad DON'T accept it... heres one which is not meant as an insult to the firm in anyway but really just shows that even firms that are major fans of RDR fees still take commission: -

"Our advice fee is payable on completion of the advice activity, either by invoice or an agreed offset of commission if we go on to implement a financial product. If we do not carry out any implementation activity, this is the only fee you will pay.

AS I ALWAYS SAY, there is room for both processes it is about client choice and client awareness!!!

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Martin Bamford

Jun 03, 2011 at 10:57

@Graeme Ferguson

I recognise those words!


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Philip Melville

Jun 03, 2011 at 10:58

Extraordinary depressing stuff as usual !

If as you say people will not pay - then that is simply because you fail to persuade them that you have something worth paying for !

The vast majority will pay if you can demonstrate that you are worth paying !-

The cost of advice will be what people will pay and if you are wanting too much then they will not pay - nothing to do with the FSA at all !

The public continue to believe that we are a bunch of commission hungry salesmen whose advice is biased towards our own ends and we are a million miles from the " professional " image that so many covet.

Stop blaming any and everyone including your potential clients for your own shortcomings.

Adapt and survive or get out of the kitchen !

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Reality bites

Jun 03, 2011 at 11:06

If we are to have total transpareny then surley the fsa cost to the consumer should be included with every product illustration / quote and for fees, the percentage of the fee is down to regulatory costs.

The consumer has a right to know the true cost to them, for their regulator !!

I feel, if the salary of sector pants and his cronies living the life in Canary Wharf were known by the public, things would change.

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Graeme Ferguson

Jun 03, 2011 at 11:08

@Martin Bamford

All firms who operate "pure fees" process have these words or variations of them.The businesses need to operate it especially if they are advising across the full spectrum of advice as they should be!

My point is CHOICE & DISCLOSURE.... if all IFAs joined together and said here FSA we accept there may be a problem so lets offer two paths, traditional and new and make sure the client signs a form to say they accept the charge/commission then we can review in a couple of years which way the consumer wants to go. I personally use the "new model" but hey the old one is fine as long as the client understands it.... I don't like people who tell clients false statement as much as the major pro RDR adviser

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Martin Bamford

Jun 03, 2011 at 11:13

@Graeme Ferguson

Didn't we all have that opportunity back in 2006 when the discussion and consultation process for the RDR started? Surely it's a bit late in the day now to only just be waking up to what RDR means; there was a time for debate, a time for acceptance and now is probably the time for getting on with it.

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Chris Geeson

Jun 03, 2011 at 11:15

Phil M despite what you say the removal of the commission route will take a whole tranche of people out of the IFA client possibility. This is not because they don't want what is commonly agreed as the premier league when it comes to all forms of financial advice but it is because they cannot afford to pay an upfront fee for the work being done. The well off pay a fee and it was ever thus the less well off just press their faces to the window wishing they could afford what was inside.

If, in your life you struggle to meet the family food bill each week fee based advice is a complete joke as a possibility and if anyone dares suggest these "type" of people should not need an IFA then you really have missed what a major part of your function should be.

Most IFA's deal with realitively rich clients but please do not allow yourself to be kidded into thinking that fee based advice will not affect the number of people who can seek IFA advice in the future as that would be monumently niaive

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John Smyth

Jun 03, 2011 at 11:19

The FSA itself is pushing up the cost to consumers. As they push up IFA costs they have to be passed on to consumers. The IFA community does not have a limitless fund hidden away that they can keep funding the FSA's increased demands with and will find it even more difficult come 2013 when there will be much less of them.

The FSA have never wanted to acknowledge that the vast majority of high networth clients have always been able to negotiate commission discounts and have or that commission has been revealed openly for years.

Some high networth individuals may enjoy savings but the medium networth and low networth clients will not be prepared to pay the fees IFAs will need to charge to stay in busines resulting in them walking blindfold into the arms of the banks, building societies and insurance companies misguidedly believing they are getting better value from them.

The following are some of the things the FSA should have been tackling long before the IFA community.

Our office is across the road from a busy Nationwide branch and every time any of us pop across to carry out a banking transaction we overhear some poor elderly person or couple being flogged one of their bonds of one sort or another and this being done at a desk in the open office/shop for everyone in the queue to hear . The young women flogging them have little financial knowledge or experience other than in flogging their own and L & G's bonds. Mostly the explanations of what the bonds are about would be laughable if they were not a serious matter. We refer to the Nationwide shop as the bond factory.

This week one of my colleagues overheard one of Nationwide's young ladies telling an elderly couple having difficulty in understanding the bonds she was trying to sell them that it was the one most highly recommend by the FSA.

Two weeks ago when phoning RBS to check whether some funds were paid into my current account with them one of their young ladies advised me that because my current account was a very old one I should come into see them and undergo a review of my financial affairs with one of their financial adviser because the FSA recommend that this should be done every 6 months. I asked her for what purpose should I do this and she replied so that they could enlighten me about all of the other products they offer. I then asked her what were these products. Her immediate reply was household insurance. After I finished laughing I declined her offer advising her of the business I was in and if I wasn't her bank would be the last organisation I would take financial advice from.

We all know that the banks have infiltrated and control the FSA but I find it sinister that they have all started to use the FSA to back up their sales pitches. This must be handed down from the top by the same type of guys who devised the sales pitches for mis-sold bonds and PPI.


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Ned Naylor

Jun 03, 2011 at 11:20

Fees are definitely not the same as "commission"

If we are being forced to move to a Fee charging model, whether this be a fixed fee for various elements, time costed hourly rates or a percentage of funds under management, it is the method of getting remunerated which has to be worked on.

If a fee is expressed as a percentage of funds under management and is deducted from the investment by the provider and paid to the firm, this is not "commission" as operating under the current commission system which is at the discretion of the provider, but I despair that fees expressed as a percentage could even be fair, if this is going to work, fees must be fees, paid directly by the client to the adviser for work done based on the operating costs of the adviser/firm.

Now we get down to the real issue, what is a fair rate, because if the FSA is going to be the arbiter of what is fair and reasonable, it must define it.

Small IFA one man bands, within a network are generally more cost effective from the point of what it costs to operate the individual practice, but networks have differing costs and requirements.

Are networks going to dictate the charges to the client, or is an adviser within a network free to set their own charges.

With regard to individuals operating as sole traders not in a network and working from home, should their fees be less than the network adviser, who has to support the networks cost base?

All a bit wooly for me.

Re - the VAT issue, will a network adviser turning less than the registration limit on a self employed contract have to be registered and charge VAT?

The RDR is going to cause more problems than it solves methinks.

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Mike Hardy

Jun 03, 2011 at 11:29

I was at Canary Wharf the other week and I am sure the FSA told us all that they would not be deciding what IFAs could or should charge for their services. Was anybody else there? Did you hear what I heard or am I imaging it?

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Ned Naylor

Jun 03, 2011 at 11:39

If John Smyth has been told that he should whistle blow Nationwide, write to Jeff Prestridge at the Mail on Sunday and Nic Cicutti at Money Marketing and anyone else who wil listen, name names, shame the shameless I say.

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Philip Melville

Jun 03, 2011 at 11:44

Ghris Geeson,

I believe it is time to stop blaming the public for our industry shortcomings.

There can be no question that our world will be a better place when the public actually believe that we work for them.

The real problem is with advisers who have not taken the trouble to work out how to express their proposition in a manner which justifies payment in the customers mind.

VAT etc are just red herrings to disguise the fact that most advisers would be better off in a direct salesforce where the employer took all of the responsibility - eg SJP.

Why not use these forums to share solutions as opposed to problems ?

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Ned Naylor

Jun 03, 2011 at 12:01

Following text sent to FSA

It will be interesting to see the reply

We have all been put in the position of being stressed out by the relentless pursuit of our sector to put it into oblivion, if I do not get an anwer, we should all set up a fund to take this issue to court with someone like Pump Courts barrister who has to date been locquacious on these issues.

Dear Sirs

Like many older end advisers (62) I am endeavouring to work towards achieving level 4 prior to RDR implementation and the proposals for other methods

of achieving same are just as burdensome both financially and mentally.

Should I not be able to pass the required exams prior to the deadline, what provisions has the FSA made to accommodate my rights to continue advising clients ?

I am also unsure as to the legality of what is now being imposed on established older advisers and would request that you clarify the following as you have

previously refused to disclose the legal advice given to the FSA under the principle of Legal Protected Privilege, as to whether the regulator has the right to impose new qualifications on existing advisers and

whether the regulator has a legal right to disenfranchise them from their profession after a certain date and ban product provider commission.

I would like to know the following :-

1. Under what section of FSMA 2000 does the regulator acquire the power to ban providers paying commission on investment products to the advising firm?

2. Under what section of FSMA 2000 does the regulator acquire the power to impose additional qualifications on existing advisers and acquires the right

to de-authorise them if the additional qualifications are not achieved by the implementation date ?

I have studied FSMA 2000 very carefully and cannot find any section which allows such draconian changes to be made to our business models or rights to

trade and I feel it would be most useful for the regulator to demonstrate its commitment to openness and clarity if it could provide specific authorities

concerning the imposed changes being imposed .

As customers of the FSA I believe IFAs who pay the regulators fees, have a right to be advised as to where the authority to make and impose these changes resides.

I will quote, as an example, that when the nursing profession moved towards a degree qualification for nurses, existing nurses were not forced to take further qualifications

unless they wanted advancement and were allowed to continue in their current positions without encumbrance.

As the nursing profession is essentially addressing life and death matters, it would seem strange and quite bizarre that the IFA profession, which does not involve

itself in life and death matters, only financial issues, is being threatened with de-authorisation if the RDR requirements are not met.

Please clarify the above at the earliest opportunity.

Yours sincerely

Paul (Ned) Naylor

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Jonathan Kirby1

Jun 03, 2011 at 12:04

"The cynic knows the price of everything and the value of nothing."

Oscar Wilde

We have a very cynical regulator.

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You must be joking

Jun 03, 2011 at 12:05

@ Martin Bamford

I have the utmost respect for your own and your father's comments and business model (and I've even read your book!), but I would pose the following questions:

Do you ever recommend Passives? If so, do you make an advice/implementation fee in respect of these?

Do you ever recommend fixed interest funds? Do you provide an ongoing review service for which you charge?

If the answer to the above is yes, then, of course, the client is facing additional charges.

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Sam Caunt

Jun 03, 2011 at 12:06

For our clients it is costing more. The hourly charge has gone up to cover the costs and time of training and complying with the RDR even though we have been adviser charging for years. Whatever the rights and wrongs of the RDR the FSA are delluding themselves. I have already quantified this cost and to make such unqualified comments demonstrates the two standards that apply - fair and not misleading.

Whatever the effects across the market place where the RDR may reduce charges for most clients, for those consciencious firms and their clients it is costing more. 10% more now. Period.

Then there is the cost of capital adaquacy.....

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Simon Mansell

Jun 03, 2011 at 12:06

@Alasdair Sampson Jun 03, 2011 at 10:19

But Alasdair you fail to mention the huge success of "No Win No Fee", where lawyers effectively work on commission! Clients love this because it means they can take legal advice in the knowledge that

a) they won't go bankrupt win or lose

b) The lawyer won’t take the case unless he can win it

c) They won't pay a professional just because her is a professional.

It is because of fees that the legal profession is a no go area for 99.9% of the UK population which undermines society just as this the post RDR loss of independent advice will do. No wonder all you new model fee based types are rubbing your hands with the abolition of commission.

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You must be joking

Jun 03, 2011 at 12:06

@ Martin Bamford

I have the utmost respect for your own and your father's comments and business model (and I've even read your book!), but I would pose the following questions:

Do you ever recommend Passives? If so, do you make an advice/implementation fee in respect of these?

Do you ever recommend fixed interest funds? Do you provide an ongoing review service for which you charge?

If the answer to the above is yes, then, of course, the client is facing additional charges.

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Graeme Ferguson

Jun 03, 2011 at 12:20

@ Martin Bamford

I have seen this before from others and I will also say that I was never consulted on RDR, never had a chance to air my views etc.

RDR has no substantial research of any nature and clearly the soundings in the industry are predominately negative both in respects to advisers and clients.

Like I have said before I have changed my model and continue to increase my delivery, my proposition, my education etc, but I don't like saying to my industry...see you guys over there who don't or cant move quick enough you can wistle if you don't like it and saying to potential clients, you need to pay me now before I open my mouth.

There is room for both models and really it is the only fair way for a potential change.

Our industry gets enough knocks and we shouldn't be arguing internally we should all be supportive.

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Jun 03, 2011 at 12:29

@ Simon Mansell

What you have written is SO true. A(n ex-) client had an ubsubstantiated claim rejected. She then went to a professional claims handler who altered a subtle point of her claim, making it untrue. My (then) network advised me that the FoS had upheld her appeal, although l could so easily have disproved this "subsequent alteration" to the original claim, but l was not given an opportunity to put my evidence. I have no right to appeal. Why?? I am seriously out of pocket.

The public LOVE this "no win no fee" advertising which is now incessant, and the FoS just love the clients documentation put together in such a "professional" way by a full-time "claims handler", (do they disclose the up front monetary commission -no, just a percentage) and l'm afraid unless something can be done about it, giving any advice could have frightening consequences to our pockets. It's amazing how clients have such selective memories and how their recollection of key events can change over a period of just two years. These claims handlers know how to use the system. They know what the adjudicator needs to see in order to win. It doesn't seem to matter any more whether its true or not.

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Chris Geeson

Jun 03, 2011 at 12:30

Martin I am not in any way blaming the public, levels of income will now dictate whether you get good or potentially much less than good advice.

If your client has not got the money they will not in fact cannot afford the fee, these are the same people who do not use accountants for the same reason

Solutions, lower the maximum commissions ensure all providers played from the same song sheet and allow the client the choice, max 3% with a ceiling but lets be honest those who invest anywhere near a ceiling would be well off and could prehaps afford fees. Just a thought and one that has been expressed often

As to those who have, as you put it ,worked out their proposition already I bet you have loads of clients below average UK salaries on your books as individual clients.

IFA's will chase the higher earner RDR will make that more and more vital as a strategy as our time becomes more and more expensive and regardless of your counter arguement tens of thousands will now full outside of the IFA client remit.

OH and the name is Chris

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Dave Bettley

Jun 03, 2011 at 12:44

Forget the moral high ground in this - will the RDR improve clients situation and is there clarity in a fee based propositiion.

How can FSA make such a bald statement without proof. An IFA would be hung from the rafters if they intimated a client saving without clear doocumented proof. Cetainly the initial "sale" can be costed but ongoing maintenance advice and the effective reduction in yield - how will the indicative cost be illustrated in a way that clients currently understand and accept.

Competition may well reduce the cost of advice, even after soaking up the VAT charges but I do not know how I can demonstrate compliantly the potential effect on the clients returns in a simple compliant document. I can only give indicative time, current hourly rates, and current VAT rates for ongoing advice but I can't give penny perfect examples of the reduction in return as a result of the effects of my estimated future charges.

No 2 clients will be the same so rash statements about cost savings can neither be proved or disproved now or post 2013 and that should be a concern to us all.

Anyone know a compliant solution - Set up @ £120ph -Illustrate ongoing at @ £50 ph and then charge £120 could be the threat that the public face if an industry standard isn't agreed. How will they compare adviser charging in the future - Go Compare ! who may do it for "free" on execution only.

Execution only and self management are potentially the greatest threat to our industry - will that improve the lot of the public ?

Current FSA communication is another example of a system designed by committe - ill thought through and poorly communicated to ALL concerned.

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Is it ME!

Jun 03, 2011 at 12:56

Market economics are alive and well at the moment and many advisers do rebate commission on bigger cases or risk losing their clients favour.

Just a thought,I wonder what the general public would say if the OTHER FSA put 20% VAT on Food!

I think the best analogy here is the changes in dentistry in this country, once the NHS cross subsidy model disappeared people had no option but to go down the private route, dentistry seems to cost everyone more money now days. The market will settle, the numbers practicing will change and the customer will pay more.

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Paul Claireaux

Jun 03, 2011 at 13:03

I'm with Mr Bamford here.

6 years is quite enough time for consultation and implementation.

I suspect if major flaws were found amongst the work of health practioners or the aviation industry they'd be a public outcry and the issues sorted out a lot quicker.

There are some great advisers in the UK but their profession is undermined by unqualified overchargers plus a few scamsters.

People (generally) don't die as a result of these guys so we have a bit more time to sort things out. But their money does die from excessive charging and inappropriate advice.

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Julian Stevens

Jun 03, 2011 at 13:17

"We have been working with firms, advisers, consumer groups and industry experts to improve how investment products and services are recommended to potential investors." What utter crap. If there's a shred of truth in this claim, please prove it by publishing the feedback on your consultation. The fact that you won't confirms the lie.

And just who, other than consumers, are going to foot the £1.7Bn cost of implementing the proposals of the RDR? I'm certainly not going to. I'm already paying far too bloody much to support the FSA.

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Jonathan Kirby1

Jun 03, 2011 at 13:22

@Paul C

It seems that the majority of expensive scandals of late have been perpetrated by the higher qualified.

You obviously know nothing about the indutsry, perhaps you work for the FSA?

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Patrick Rymero

Jun 03, 2011 at 13:43

Cheaper advice for all is on the way, unbiased advice at last.

People of all financial backgrounds able to pay for and get good advice.

Roll on RDR.

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Ned Naylor

Jun 03, 2011 at 13:44


IF the statement was untruthful you should have ignored the networks advice and wrote to the FOS yourself, no one should be held to blame for a loss, based on false evidence or statements.

I personally would now sue the client for lieing to the FOS and reclaim the losses incurred as not only have they breached civil law (Tort) but acted fraudulently, via their claims handler who should also be included in the action.

YOu should take this to your solicitor ASAP Stand up for yourselves against the attacks of insidious.

Networks are notorious for allowing fraudulent claims the FOS upheld to stand.

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Philip Melville

Jun 03, 2011 at 13:54

@ Chris,

I can only speak from our own perspective of course but we do serve people from all socio economic groups- retail assistants through to very wealthy folk, and since 2003 when we began to change the way we got paid we have NEVER had a single person from any socio economic group object to the clear transparent way in which they pay us.

Just imagine a world in which the FSA simply stops providers of all types paying any third party or indeed as has already happened one in which the providers themselves decide to stop paying commissions to anyone.

If you enjoy this industry and approach everything you do in the proper manner then you will find a way of surviving - or leave !

All of these debates about professionalism etc seem to want to ignore the basic law of the market place. Produce something that people need or want at a price that people will pay and you have cracked it ! It is nothing like as complicated as the industry would have it.

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Martin Bamford

Jun 03, 2011 at 13:56

@You must be joking

We certainly do recommend passives and fixed interest funds. I think I see what you are getting at with your questions.

When you recommend any collectives on an adviser charging basis, the client pays the net cost of the fund, using a cash rebate system currently (which could well be changed). This means that, once the cost of the administration platform/tax wrapper and adviser charges are added, we are typically able to bring the total cost in at under the usual 1.5% retail AMC investors are used to paying on a 'bundled' basis.

Some examples from the funds we are currently recommending: HSBC S&P 500 ETF at 0.15%, Royal London Index Linked at 0.05%, M&G Strategic Corporate Bond at 0.5%. Add the wrapper fee and our fees to this, and the client is typically paying 0.44% to 0.57% on a portfolio of funds, with 0.25% added for the platform and 0.5% for our review fees.

The bundled AMC for retail funds hides a multitude of sins!

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Paul Claireaux

Jun 03, 2011 at 14:04

To Jonathan Kirby1

No. Not working for the FSA but have worked in the industry for 25 years in various capacities working with hundreds of different firms of advisers at all levels and leading some product developments for a major provider.

I wouldn't claim to be an expert but it's slightly unfair to suggest i know nothing!

I'm actually a great fan of great financial planning and know from personal experience the benefits it can provide. I introduced family members to IFAs years ago.

Unfortunately the supply does not cover much of the need and some of the supply does not offer value.

What would you do instead of the RDR changes ?

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philip spierling

Jun 03, 2011 at 14:14


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You must be joking

Jun 03, 2011 at 14:17

@ Martin Bamford

I asked the questions because, whilst I have no issue with RDR or adviser charging for the FSA to state that RDR will not result in additional costs is quite clearly incorrect.

We, like you, charge an implimentation fee - which of course is the same for all funds in a portfolio (it's based at portfolio level) - even those that would not have paid an initial commission (that bad word again) previously. This is an INCREASE in cost.

We also charge a servicing fee (where required by the client) - which is, again of course, the same for all funds in the portfolio (again based at portfolio level) - even those that would not have paid trail commission (hmm.. that word keeps cropping up!) previously. Again this is an INCREASE in cost.

So taking your own example any fund that isn't an active fund with a traditional AMC of 1.5% will now be costing more than it would have, and any fund that is an active fund with a traditional AMC of 1.5% will cost exactly the same.

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Phil Castle

Jun 03, 2011 at 14:17

@ Martin Bamford, whilst I agree with your interpretation that VAT makes no difference when we are talking fees v commission. How can you deny that there are serious u issues around where charges are deducted from, CGT issues and the fact that the cost to the consumer of advice is likely to go UP.

Have you read this quote Martin? It seems at odds with the belief that interemdiation will not be vateable? Coudl that be becuase it is based on what is viewed as the "predominant service" is gradually changing and because of how we are all changing how we work it is likely to be viewed our work/cost is advice and NOT intermediation?

"The cost of advice will increase as IFAs move to adviser-charging models, says Taxbriefs editorial director Danby Bloch. He said: “The cost of advice will go up quite a lot in net terms. Fees will be received in exchange for advice and the client will pay them out of net income. If you combine the 20 per cent VAT that may be payable on advice, plus payment out of net income, then you have got a substantial increase.”

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You must be joking

Jun 03, 2011 at 14:19

@ Mr Spierling

The caps lock key has 'caps lock' written on it, pressing it again would make your comment easier to read... :-)

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Paul Claireaux

Jun 03, 2011 at 14:22

@ Mr Spierling

I think the issue is about people selling Reliants and charging for Maseratis.

(Not that i think there is much market for either)

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You must be joking

Jun 03, 2011 at 14:29

Hmmm.... it must be Friday afternoon...

I drive a Quattroporte - it's wonderful!

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Ned Naylor

Jun 03, 2011 at 14:30

Philip Sterling

Good man yourself, exactly what this business is about, making clients happy.

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Phil Castle

Jun 03, 2011 at 14:32

@ Paul Claireaux “What would you do instead of the RDR changes” – I know you were not asking me, but….

I will tell anyone who will listen (that doesn’t include the FSA of course as they don’t), that with the increasing number of issues of unintended consequences, what should be done is they should take their foot of the accelerator pedal before they send the car flying of the cliff.

They should agree stages to be achieved (ramps) without fixed immovable deadlines and gradually drive up or down the cliff, depending upon how you view the RDR outcome. That way if they have to change direction and back up a bit, they still can, before repairing the ramp and driving forward.

At the moment they have told us to get in a car (but which one should we be using I hear you ask), not even aimed them all at the cliff, given us no safety belts and put a rock on the accelerator pedal, some will leave before we reach the car and others while believing they have got in the right one and all is well, while the FSA and the intelligentsia promise to have the ramps in place BEFORE those who get in( including consumers) go shooting off the edge!

On past performance, would you trust them to build them in time?

Let’s have the rams anchors built BEFORE we plan the invasion unlike the Mulberry Harbours for D.day whose ground anchors were thought up (luckily at the last minute)

I am NOT anti RDR or a naysayer, I am just concerned at the blinkered view the FSA appear to have and their obsession with SPEED and no U-turns. I can see some of their RDR points are valid, but that doesn’t mean I agree with the pace.

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Chris Miller

Jun 03, 2011 at 14:34

No increase in fees. One word on that and it rhymes with rollocks.

We are not charities.

End of.

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Sam Caunt

Jun 03, 2011 at 14:40

If a client wants general advice which results in the sale of a product and the charge is taken out of say a pension plan then the intermediation is clearly identifiable - you would think as this is what has been assumed in the past. But if the client pays for same advice by cheque from his own funds, that link becomes blurred and HMRC could rightly challenge it. Then it becomes more a matter of the predominating service and then it becomes a little bit harder to justify not charging VAT. In reality both payment options could or could not be VATable. What is often overlooked, is that where the charge is taken from does not reflect the predominating service. As the FSA would put it, adviser charging facilitates payment, not the predominating service.

Absurdly, if you charge VAT you are in effect saying that there is no bringing together of two parties (client and product provider) so if that is the case there is no product. But the FSA won't have it that way - you have to allocate that fee to a product in your returns. Stupid or what? I actually think most adviser charges will be exempt from VAT but for those firms who believe in advice across all areas of financial planning, the FSA and HMRC are really screwing us up! It is not the HMRC that should clear this matter up, but so should the FSA.

How should VATable fees be reported?

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Jonathan Kirby1

Jun 03, 2011 at 14:42

@Paul C

There is a massive amount of very good practice but the FSA only see the bad bits. Its like the police saying all teenagers are hooligans.

We went down the route of treating customers fairly 40 years before the FSA made it their big idea.

We have been charging proportionate to the value of the advice for years except for those who couldn't afford it who we subsidise.

We have no exposure to any of the current scandals. We have never had a complaint for bad advice upheld.

The snag is although I have no doubt I could stop advising my clients and waste time on more exams, I am so close to retirement I really cannot be bothered any more.

The bad news is there will be nobody interested in servicing 95% of my clients as they aren't 'rich enough'.

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Ned Naylor

Jun 03, 2011 at 14:51

Well stated J Kirby, in a similar position myself, although striving to achieve level 4, if it came down to Hey Lads Hey by the end of 2012 and I do not meet the criteria, with only 15 mths to pension age and with sufficient capital back up to not ever work again, it will be hard to decide to walk away, but not TOO hard that I will find it impossible to decide as the FSA will have decided for me.

This headlong dash in the last throes of this flawed and incompetent regulator will inevitably result in a much reduced IFA sector (which is what the banks want) and result in considerable consumer detriment, which as the car has been driven off the cliff without any form of control or way back will sound the death knell of a large number of traditional iFA businesses.

As for servicing your clients, might be better to join a network now and pass over that responsibility and sell the client bank to them as an AR on retirement.

There is more to life than doing this job, albeit it has been a pleasure to serve my clients, they will have a choice post RDR (if I get qualified) pay or no advice.

Brutal as it may seem, that is the choice they will have and despite the FSA publishing their little information sheet, no plans have been drawn up or costed to put this out to the general public and the press and media are so up the backside of the banks and the regulators proposals, that there is little chance of this becoming known in the near future until the proverbial manure hits the fan.

It will be interesting to see the FSAs response as to the various sections of FSMA which purport to give them the legal authority to do all this.

Barbecue weekends beckon.

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Julian Stevens

Jun 03, 2011 at 15:00

"It will be interesting to see the FSAs response as to the various sections of FSMA which purport to give them the legal authority to do all this." Indeed it would, Ned ~ but there won't be any response, for the simple reason that the FSA is accountable to no one, least of all those who fund its very existence. It's a matter of get with the programme or get the **** out. Those are our choices.

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Christopher Petrie

Jun 03, 2011 at 15:08

Blimey, this has brought the Refusniks out in force again!

Seriously, what's the news here? We've known for 4.5 years about RDR, and with 18 months to go, the FSA is now beginning to tell the public about it. So what? There's nothing in here that we IFAs haven't known for ages.

The only people who this might affect are those advisers who STILL (after all this time!) haven't got into action and prepared for RDR. Also, the banks, who will no longer be able to hide 7% commission through "establishment charges". For everyone else - so what?

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Jonathan Kirby1

Jun 03, 2011 at 15:16

@Christopher P

You are in cloud cuckoo land. The banks will simply hide their charges somewhere else in the manufacturing process.

The snag is they will be selling more without the IFA there to guide them.

It amazes me that the FSA still have not cottoned on that they are trying to regulate the IFA as if they were designing and selling their own products.

We are a consumer of products - more like a personal shopper.

They should have split the regulatory process firmly down the tied/independent line and had two rule books.

The RDR is a Reckless Destructive Review and to consumer detriment above all else.

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Phil Castle

Jun 03, 2011 at 15:24

~ Chris Petrie - Here we ho again, trying to belittle people who disagree with you by calling them "refusniks".

Have you ever worked for a bank Chris? Because if you had, you might be more likely to see the point some like Jonathan are trying to make about how a cliff edge will benefit the banks and not YOU. I worked for a bank (branch banking 1984 to 1991, Bank IFA 1992 and tied bank 93 to 96 and a different tied bank 96-99) If some of these things fo trhough to fast and decimate the IFA sector rather than allow for a smooth transition they will get teh agreement of the FCA that needs must for the mass market and they will go back to their old ways and once they get their hooks in to that mass market client for 40 years, YOU will not get a look in once they accumulate their wealth.

Have you finished your Level 4 yet Chris? Will you change your tune if you are not ready on 1st Jan 2013?

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Paul Claireaux

Jun 03, 2011 at 15:25

In support of Christopher P.

I think you're right about the challenge to hiding charges for Banks.

And i guess that's why some (Barclays) have already opted out of this space.

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michael bates

Jun 03, 2011 at 15:36

Whilst it's easy to spot who's not on the professional side (IFAs), my 8 year old son asks " do all people working for life companies have foreign-sounding names?" Not at all, I point out, this is Mr Brown's RDR.

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Jun 03, 2011 at 15:37

Well said JKirby1

Sorry Chris P, but you are wrong. The banks will HAVE to consider selling products somehow - they have there SHAREHOLDERS (not their captive, unsuspecting customers) to consider. 7% commission upfront on bond 'sales' HAS to be replaced somhow. We know from where, as it has to be from the same customers. It is most naive to believe that from RDR day, all their staff will sit in their offices doing other things that don't hook in such vast immediate profits. Banks are for their shareholders, and most of their staff are also shareholders too. They will still have "targets" of some description and l am looking forward to the post RDR day when we discover how exactly they plan to replace their profit stream from the hoi-polloi. l suspect charges for ALL bank services to escalate and that is why they want to put an end to "cheque books" after which nothing will be free.

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Julian Stevens

Jun 03, 2011 at 15:38

You know, I wonder if the FSA ever sends a delegation over to the FOS to find out just what the bulk of the complaints it receives are based on and, once the relevant data has been gathered, if it is in any way used to shape future regulatory policy. Or are the FSA's regulatory strategies based mainly on hunches, hearsay and hugely expensive reports commissioned of third parties (all at our expense, of course)?

The reason I wonder this is because if the FSA had liaised closely with the FOS on a regular basis, it might well decide that things within the IFA community are generally pretty healthy (yes, there'll always be exceptions) and that the vast majority of bad advice and mis-selling emanates from the banks' target-driven maximum commission sales programmes with nothing in the way of any after-sales service.

With this in mind, the RDR, or at least a suitably tailored version of it, could be aimed primarily where it's most actually needed. Again, it's all set out in the Statutory Code of Practice For Regulators, most of which to me appears to be based on fair play and constructive engagement between the regulators and those it regulates. And how we yearn for very considerably more of those two things.

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Jun 03, 2011 at 15:40

Sorry chaps this is all too serious for a Friday afternoon when you should be sat outside in the sun,Peroni in hand and surrounded by semi naked women.(Cant say the corned beef bingo wings are too attractive though)

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Phil Castle

Jun 03, 2011 at 15:44

@ Paul - Unlike if IFAs leave, which will probably be for good if they choose to retire or move on to somehting different, for the Banks, just becuase they move out of the market now, does NOT mean they will not move back in once the situation has been made more to their liking.

Here's the scenrio;

1. IFA numbers drop by more than 20%and consumer pressure increases to do something about it.

2. The new FCA blame the FSA (now dead and buried)

3. The Banks and direct salesforced offer their solution, but it comes at a price. SIGNIFICANTLY lighter regulation and hence costs for them, but not for the remaining IFAs

4. The Banks come back with high charging productswith no advice. A bit like the IFA firm who does most of their business without advice and yet only waives the initial charge and NOT the ongoing fund based which in the long term will be much more benefitcial.

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Christopher Petrie

Jun 03, 2011 at 16:38

Well, I'm sure some banks (or possibly Upmarket Sales Forces) may consider trying to hide advice fees, but we shall have to see if they can pull the wool over the FSA eyes. Any IFA that sees anything like this....report it to the FSA immediately! However, as Paul says,Barclays giving up already indicates it might be very difficult indeed for the banks.

Phil - as it happens I passed the final paper last Friday for 140 points....just a whole bunch of Gap Fill to do now!

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Phil Castle

Jun 03, 2011 at 17:00

Chrhis- Well done. I should finish mine mid July this year, but should be no Gap Fill as I did all RO papers bar 20 pints (sorry something else on my mind, it is nearly 5 afterall) and got the other cert points to make my 140 too.

I'm not a naysayer, I am a not so fast, make sure the bridge will hold before driving across it.

I note you don't comment on my belief that they Banks will be back (even if not with 7% on bonds thank goodness, but then I have seen 10% done on a large portfolio of bonds by an IFA with no ISAs, IHT planning or justification I could see for what he took, but that is not a compliance issue, it's just immoral)

RDR will not get rid of the crooks and in fact will get rid of some good honest hardworking and valued IFAs which is why I do bite when you use inlamatory wording aimed at them which is unneccessary and counterproductive, a carrot would be better as if you use a stick or inflamatory wording, some people will pick up the stick and hit you with it even if you were using it on someone else.

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Paul Claireaux

Jun 03, 2011 at 17:53

7% commission ?

Up until a few years ago a major bancassurer was delivering a reasonable set of Investment products (Funds, investment bonds, pensions) to consumers at around 0.9% pa total cost including advice.

There were NO front end charges or exit fees on the products either.

Yes, like the curates egg, there were occasional problems with the quality of advice but on the whole it was quite robust. And they were using a form of life planning years before George Kinder arrived here that the clients found very helpful.

Assuming that the cost of the product wrappers and fund management totalled about 0.6%pa (as a retired product development manager I realise it will depend upon the size of the case) then i guess the advice was being delivered at around 0.3%pa to the customer. Ongoing advice and reviews were available but somewhat sporadic so let us say that this advice cost was paying for the upfront cost of advice alone. So, assuming say a 10 year term and ignoring growth we can then say that advice was being delivered at around 3% initial charge only.

This was without question a highly competitive offering but one that was later reviewed, disposed of and replaced with a far more expensive set of offerings including some fund of fund offerings.

I recently decided to test the market for advice on my own investments.

A reasonably knowledgeable adviser visited me one sunny afternoon and we sat outside talking about his services and charges. He mocked the idea that I might get charged 7% by a bank for advice on an investment and explained that his charges were much more transparent and competitive.

There were: fees for the initial fact finding meeting; fees for initial analysis of those details; fees for each piece of information obtained on each of my holdings and fees for a report if I wanted one.

Then there were fees for the second meeting to run through recommendations and fees for any implementation of product at the rate of 3% of the amounts invested plus 1% pa for “ongoing services” – the value of which I couldn’t quite understand.

Having studied some maths at school I was able to add these numbers up and asked him the rhetorical question of whether he felt his total fees of around 16% (1% pa for 10 yrs plus 3% up front plus 3% of various flat fees) were better or worse than those of the bank at 7% ?

And the moral?

Both banks and IFAs can be expensive. And both can deliver reasonable value if they choose.

Hopefully a more informed public will demand that better value option.

Signing off now until the winter as I have a book to write – it’s been fun.

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hollingdale michael - itgs me, oned and

Jun 03, 2011 at 20:53

A slight digression -

When taking in to account all of the above comments and my belief in where the industry is going in the future (not very far I am afraid) it really made my day when reading 'Careers brief' in Money Marketing 19th May 2011.

What an absolute hoot - they obviously have no idea of the plight of our industry and since they have no idea I believe it is truly a criminal act, without a complete understanding, to suggest a fabulous future opportunity can be had in our industry and offer -

A 3 year University degree allowing them to graduate with a QCF4 level equivalent degree -

Leaving University well in debt, where on earth are these graduates going to be offered well paid jobs £75,000 per annum, plus car, plus pension when they have No contacts, NO clients and all are on a Fee based income.

How can any new recruits be forwarned of the possible future lack of opportunities -


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Ian Lees

Jun 04, 2011 at 10:20

I disagree completely with the FSA and their view " that cost for advice will not increase ". It is utterly ridiculous to say that advice will not increase. Of course it will ! For a start the FSA has reduced the number of advisers - common market forces means advisers can pick and choose who they will advice as a result of the restricted numbers ( 400,000 down to 40,000 and expectations of a 10% to 20% reduction again) when RDR comes in). Then there is increased cost of compliance, increased cost of risks, and as we have seen with NEST, whose inherent costs are increased. We are already seeing people left without advice - from teachers, local government schemes - abandoned by Gov't and the FSA - left to theri own devices, losses to theri schemes hidden and absorbed by the beneficiaries w- who left their TRUST in their employer and the Trustees of the Scheme. If I was going to stay in the industry, AS A BUSINESS MAN . . with reduced access to advice - I would certainly INCREASE MY PRICES, for increased profit - and to offset ALL THEADDITIONAL COSTS applied in the past through this absurd " regulatory system ".

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Ned Naylor

Jun 06, 2011 at 11:38

Not wishing to be called a "refusenik" here is what I think needs to be considered.

1. I am not against gaining professional exams - it's this unwarranted rush towards the cliff edge time line I have a problem with as do many others who aspire to better things, we need a more generous time scale. WE still have to run our businesses and maintain solvency. Studying does not add to that taks. The exams need to be a genuine test of knowledge and expertise in advising clients, not how many different authorities govern the regulation of the industry, so far I have seen (FSA,FSMA,FSAP,MPC,TSC,MiFID,) detailed in the RO1 Study material, an exam in which my most recent attempt to pass it showed that Ethical and Compliance Driven behaviours, Skills in advising clients and FSA regulations and fair outcomes, I got 100%,100% and 85.7% respectively yet I got a fail mark. How can that be I ask myself? Answers on a post card and I will thank those who think I am just thick, not to comment. Ah well third time lucky I suppose, but if this is going to happen every time, I will be drawing my old age pension before I pass all of the required exams.

2. I am not against charging fees - however the potential effects on the volume of retail investment business which will subsequently decline post RDR deadline and the commission ban could, quite conceivably harm the economic recovery.

3. I want regulation of the industry I have worked in for over 21yrs as an IFA to be clear, unambiguous and definite, wooly minded phrases such as "sense check" put forward by people less experienced in dealing with consumers of financial products does not make our job easier, especially as there are no definitive guidelines to refer to as to what a "sense check " involves, how it is formulated and applied and what it is meant to achieve.

4. What I am against is a regulator which has no legal liability, imposes changes to our industry structure without any consideration of the wider consequences of their actions as to how it will affect the consumer, the economy and the wider social implications of dis enfranchising possibly millions of existing policyholders from affordable Independent Financial Advice.

Would it not have been easier to insist that all banks and building societies offering financial advice had to become IFA? That would ostensibly grow the market for retail investments, not put millions of consumers at a disadvantages and would certainly take many banks out of the equation altogether as they would not be able to work within the regime we have to.

it will as one subscriber to this blog put it, be very interesting to see which parts of FSMA give the regulator the authority to do this.

5. I am also against keeping the public in the dark about what is being done and not having a clear transparent public information marketing plan to bring the consumers onboard. Most consumers will get the shock of their lives when they learn that professional fee charges will rise to the level of those in the legal and accountancy profession, how many people have been put off taking legal action because of the costs?

It will be the same for financial advice only the very well off will actually be able to afford it..

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Terence O'Halloran

Jun 13, 2011 at 12:13

What a great debate, and well said Simon Mansell re costs. Alasdair Sampson and so many other correspondents miss the main point of all this 'change' which is to improve the service delivered to the public, the consumer, whatever fancy name that is applied to our clients, potential and existing.

Will the RDR deliver an improvement in service availability? The discussion is NOT about fees or commissions. O'Halloran & Co has been fee based for over 20 years and we are proud of our achievements in that are. I sell 'Fee-Pac' and give lectures on the subject but is that really the focus? NO it is not and should not be the focus: our clients best interests are the focus and that is lost; and or distorted, in this commentary.

Many good advisers, delivering good, solid, financial advice, are leaving the profession (and it has always been that, a profession) because unqualified and inexperienced voices are raised with little real thought for the public we serve. Their own grandiose ideas and personal egos get in the way of the truth, which Simon highlights so ably in his comments.

If you really care read and digest the results of objective informed commentary, therein lies the truth and that truth is that the cost of providing advice to the public will rise, as my fees have, because that is the commercial reality of the expensive , intrusive and largely unnecessary consequence of regulation and imposed over education, against natural growth and educational evolution.

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Ned Naylor

Jun 13, 2011 at 13:29

I am a very concerned about what we should all be doing about these changes as the consumer is so ill informed at present and being conned into thinking that the FSA is providing a "Free and Independent" advice service, why should anyone go to an IFA anymore, after all paying fees for "advice" which may or may not be taken up seems to ignore the fundamental principle of a free market.

There is also the issue of consumer protection for bad or unsuitable advice, if a consumer goes on to the FSA MAS site and concludes they need a Life Assurance plan, obtains such a plan from a direct website and then his family finds out that the plan the consumer thought they wanted after consulting the MAS was not appropriate or suitable (say if Critical Illness was not taken up and subsequently suffered) what would the family be able to do, could they sue the FSA (NO!) could they sue the direct provider (NO!)

Maybe they could sue their nearest IFA for NOT Offering advice!

Some time ago, I believe the FSA also outlawed the "front loading " on investment business that was so prevalent in pension plans that the first few years premiums were virtually worthless, yet now we are being told we can apply our "fees" as a front end charge on clients investments and have them deducted by the provider to pay us or the client to pay us directly.

I have no problem with being paid, but I feel the way this has all been imposed on our industry in such a short time scale, will see the death or dissolution of many Life Offices who rely on iFA procurement and of course the loss of a not insignificant number of iFAs from our industry over the next two years, leaving a gap in the "advice" market which wil be vigorously pursued by the banks and direct providers.

I also believe that the level of retail investment made by the consumers will also fall, resulting in lower capital input into the markets, lower performance of funds in the retail investment sector and ultimately a dramatic slowing down of the economy due to lower market capital.

Me - been FEE based since 2003, but with a choice for clients of fees or commission by comparing the various methods and detailing the advantages and disadvantages of each method. Don't have a problem with fees, just a problem with not being able to offer a choice in future after 2012.

As for Mr Sampson, encountered him on a number of occasions acting for a number of advising firms attempting to put off clients complaints about the Integrity Maximiser plans, thankfully for once the FSA came down against these toxic investments, but he supported the advising firms point of view that they were suitable for my clients. My clients won their claims at FOS stage and got paid out.

It's OK being critical of our industry and our sector from an outsiders point of view and thinking you are an expert on what we should be doing, but as the FSA is allowing percentage fee charges to be levied on investments, how can that be justified (e.g. Towry Law model) Simply put a percentage fee is a commission, the only difference is that it is not paid out to and adviser by a provider.

If we are to charge for work done, the charges must reflect all the aspects of our work, costs of regulation, PII cover, running costs of operating a practice/firm and of course an element of PROFIT, without which no business can survive.

The truth about RDR is that its original concepts were quite laudible, moving us into a professional status and ensuring tranparancy in charges, but it has become a mish mash of confusion, dis-information, downright inaccuracy and concentrating far too much on achieving implementation in such a short space of time (No we did not have 4 yrs to prepare for it, only 2) that now the IFA community is going to shrink, only be pertinent to the wealthy and well off and the average consumer of financial products and services is being so disadvantaged and kept in the dark that this amounts to deception of the public in failing to inform them of what is going down.

The MAS is not a good service, has some significant flaws in its operation, is woefully mis named and has no place in the regulatory obligations of the regulatory body under FSMA it should be discontinued and / or funded by Government not the industry. Our fees paid to the FSA are not paid for them to promote themselves as an advice service.

We are all standing at the precipice of what could either be the best thing that happens to Financial Services or the worst and no one can predict what will happen, other than millions of consumers will get the shock of their lives when they find out about the TRUE cost of IFA services based on fees only.

Our businesses need to be sustainable, the level of fee charges will need to be significantly higher than at present, if only to pay the FSA to put us out of business.

All in all the RDR is a bad call.

Off for the rest of the day now and going for a nice walk.

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