The Snug Rhino

I run an IFA firm that works on the traditional earnings model (explained later).

After 10 years in the industry I have realised that a huge amount of "advice" given has potential conflict of interest issues that surround it....maybe far more than most people realise…..and a new approach is required.

As such I am considering launching a new company to offer advice on a "we work for YOU" basis and just curious if those that already use an adviser find that an interesting idea? This not totally new but is certainly rare in the general market place.

In simple terms, our problem with the traditional earnings model is that the adviser (and it makes no difference if they are IFA or not) get their money from the provider of a product sold and not from the client they are suppose to be working for. This means that even the nicest, most highly qualified adviser is always going to struggle to remove themselves from being regarded as a salesman....heck, as most of them have sales managers and sales targets it’s no surprise!

Our proposition is to charge clients an annual retainer to WORK FOR THEM. Beyond that we will be far more competitive than the normal model. For example, if a client invests £50k many advisers will take a commission from the provider of that investment of up to £3,500.....our approach will be to charge the client 1% of the investment to set it up (£500) and .5% each year to monitor it.......these charges don’t have to be paid by the client and can come from the provider if the client would rather...in which case the provider will pay us £500 and stick a load of extra cash in the clients investment. In addition we are then be paid each year in return for monitoring the investment so it’s in our interests (and the clients) to keep a successful long term relationship going. When you look at comparisons of charges and their effects on plans the difference between our approach and the norm is huge in terms of reducing the cost to the client.


So....would you rather pay an adviser an annual fee* and then receive advice on what you need and if you do need a "product" of some sort you get it much cheaper or are you happy to assume the adviser is looking after your interest even though you don’t pay him anything and if he doesn’t sell you something he doesn’t earn anything?

* should add, the option to pay the annual fee by using commission on a product will still exist....for example, if in one year we re-broke your life assurance to get you lower premiums. And that generates £400 of commission you can choose to use that to pay our annual fee. In effect the commission becomes THE CLIENTS and if they want to pay us with it that’s up to them, we don’t care.

Any thoughts?

Rhino

Note for the FSA....my company is not known on here and WILL NOT BE DISCUSSED ON THIS BOARD (or via PM) EVER. This is not a promotion or a marketing pitch......this is about finding out what the public would like to see to improve a widely distrusted industry. ....and that should be in everyone’s interest.

paulr

Personally i dont care how the advisor is paid,what matters is do you trust him/her. Sadly,because of all the negative publicity of recent years regarding financial advice,i find it hard to trust any advisor/company. Sad,but true.

I just pile it all up in various savings accounts,cash ISA's etc.

The Snug Rhino

interesting....the problem here is that no one EVER acted on advice from someone they didnt trust. Yet many people got poor advice and the conflict of interest that results from the payment model has to count in that somewhere.

you should be aware we are TRAINED to get you to trust us. When people feel they have found a trust worthy adviser what have they based that on? A written contract with that firm, evidence of their comitment to the client.....or just a good feeling (that the adviser has had some of the best training in the sales business to ensure you feel)

john banks

Nothing at all sounds new regarding what you are proposing, so exisiting quality market research should be available.

I also wouldn't trust an "I"FA further than I could throw them based on experience that every deal they have ever offered me I have been able to find something more suitable with a bit of personal research.

The Snug Rhino

John,

There is a little research on this but very very few companies operate in this way at the moment. certainly none of the bigger firms and most of the small ones cant afford to switch.

Your problem is a tricky one....explaining to the public what they should look for in an adviser is a hard message to get out there - yet would stop people ending up with lousy advisers as you seem to have done.

Spoon

Exactly John, if anybody has at least half a brain then research will often bring up the best results. That applies to anything.

The people who won't do it themselves or might not necessarily have the time, are the people at risk of losing out.

The Snug Rhino

It also depends on the issue at hand....while finding an ISA may be something that anyone with access to the net can research quite easily its something else altogether when looking at more complex topics.

Its like saying i can change my cars battery so i dont need a mechanic ever again!

Brendan Hughes

Sounds sensible. I see one or two probs: firstly, in a market where no-one "pays" anything at present, you'll have difficulty convincing people to pay 500 up front. You might want to take it out of the first or second year's profit, but that gives you a cashflow problem. Secondly, I'd be damn happy to know my advisor's profit each year is dependent on mine, so they have a vested interest in keeping an eye on it. Advice up to now is "we think it would be good here", so I transfer it there, hear no more from them, and the fund plummets. WTF are they being paid for? I could imagine the IFA couldn't be arsed to look after a small investment though, too much work for not enough profit; for poor people like me, that would be a point worth thinking about. I suppose it would work if you get enough small clients and manage them as a job lot.

Spoon

It's nothing like your analogy at all, from my point of view.

It might be to those who believe researching any financial matter requires an IFA, when clearly it isn't the case if you are clued up.

lordlucan

Would work for me.

To date I have refrained from advice purely do to the lrg kickbacks involved. I welcome your scenario. When I searched for a IFA offering the service it was too expensive for me as they charged a fixed amount, given the small amounts I had to invest did not make it worthwhile.

J

The Snug Rhino

no...but some financial matters do for the normal person. I have spent 10 years working in investments and advanced tax planning for high net worth clients.......the knowledge i have and the research tools avalible to me in those areas and far beyond the reach of "just anyone" with a little time and a laptop.

my example indicated that the average person DOES need a mechanic but can change a battery (with a little research)......in the same way, the average investor can not do what i do yet could do many simpler things...with a little research.

thanks to the other posters above, usefull info.

sociopath

Was the sale of your former username part of your business plan?

The Snug Rhino

Off topic and pointless.

Lee247

sorry to go off topic, but where did your name come from

sociopath

Yup.

Too bad you were teeth itchingly desperate for someone to do the honours and bust you, hence negating your 'post count/notoriety is unimportant to me' speech.

So there.... consider yourself humoured

The Snug Rhino

hardly, dont go on about it if you feel like that i have no intention of rasing it as an issue and only responded to you...lets just leave it there, unless you have any usefull thoughts on financial advice?

Rhino

The Snug Rhino

thats always going to be a problem.....while a yearly fee and cheap products will save larger investors significant sums it wont help those with smaller amounts. I'm affraid that while i am keen to alter the way people pay for advice i simply have no idea how to solve that issue while still making money (and if i dont make money i cant do much else!)

ScoobLou

iTrader: (21)

Nope wouldn't pay upfront, especially not to you, besides, I like my FA to be able to spell

Not nice is it when someone poo poos on your thread

EddScott

Its a shame that people still take a dim view of IFAs.

I can only assume that the IFAs that the SNet members have been visiting aren't what you might call "True" advisers.

I'm qualified but my main job in our firm is Practice Management. None of our advisers chase the big money. Whereas a small minority take as much commission up front as possible, we have a rule that where possible on every case we take a little commission up front for the initial work and a "Renewal" commission every year. This renewal commission pays for us to re-visit the product sold and actively manage the money.

Those that feel that the job can be done by themselves - do you have an accountant? How different is your accountant to your IFA. Your IFA gets paid commission on the products sold. Your accountant gets paid for the skills they may (or may not!) have in accountancy. I would like to point out that the number of exams required for all aspects of financial advice and the ongoing training we need to be seen to be doing can take up quite a large amount of work and free time. If it was that easy how come the training involved never really stops - only evolves as you grow in your profession.

IFAs should be paid for thier skills in the IFA market. Yes you could manage your fund by yourself but with a little training you could also manage your accountants - so where is the difference?

I freely admit that in some cases I have seen IFAs taking high chunks of commission and choosing companies soley becuase they pay higher commission. EDIT - I should also point out that these are a dying breed of IFA and care should be taken to ensure you are getting the best deal - EDIT

One point to note is that if you go to your bank and thier "In house" adviser has access to external investment providers their commission rate can be 7% plus - not to be sniffed at on a 100K case!!!

The point of going on fees rather than commission is that the IFA is paid for his knowledge of the financial industry, not on the product sold. The average commission payment on the maximum investment into a MAXI ISA is £210. That barely pays for the costs involved in research and all other related costs.

We have been considering a tier system. Tier one would be for those looking for expert advise over and above a bank and may only have a little to invest - this would mean choosing funds/products (also co-related to the clients risk profile) that are low maintenance. The upper tiers would be actively managed and on larger client funds where a percentage of their overall portfolio would be paid to us while we actively manage the client portfolio.

Again, no specifics to our company or advice will be given.

The Snug Rhino

you wouldnt pay? heres some free then....shoot that lumpy mutt of yours and save some cash on vet bills.

The Snug Rhino

interesting idea....we are quite lucky in that (because of our IHT focus) all our existing clients are pretty HNW anyway and we very rarley do investments under 75K (average is about £120-150k...with a few upto £1m)

This is why we think a retainer + 1% + .5% trail would be a better deal (instead of 7% or 3/4% + .5%)

The frustration is that we KNOW it would be a better deal but unless we can a) swicth most clients to a retainer and b) increase client numbers quickly it makes it a huge cash flow problem.

Although most people on here are not really our typical clients its interesting to get a feel for the regard in which IFA's are held.

It almost seems its got so bad no one will let anyone put it right!

Reality

The retainer sounds like a reasonable idea. But instead of a flat .5% per year to "Monitor" I would rather see a scale of annual charges based on above average performance of investments.

eg If you exceed the FTSE by 1-5% you get .5%. Exceed it by 6-10% and you get 1.0% etc. This way your interests are the same as mine so a conflict is less likely to occur and I'm more likely to trust you

Jonathan Davies

Trail commission has always made me suspiicious. I realise it's part of an overall business model, but it kind of seems like people are picking up money for doing nothing - even for leaving me in a product that might not be the best in the market any more.

TBH I think the difficulty about changing IFA fee systems is that no-one really wants to face facts. Advice costs money, and if you want good advice you will have to pay a fair bit. As a punter, that's all there is to it, and if you think you're not paying, you're wrong. It's coming out of your hard-earned one way or another. But that's not what any customer or provider wants to hear - the commission system is less painful for everyone... but it's fundamentally opaque and open to abuse.

That's not to say advice is never worth it. Good advice often is, I'd say. I'd like to see all commission sales banned in financial services in a way - that way there would be transparency and greater understanding of costs and value... and the good would thrive at the expense of the bad. Maybe. That's not going to happen, obviously.

davyboy

I get my financial advise from SN

Reality

Did you know that Shaun's on 1.5% commission from the Smug Rhino

EddScott

Indeed, not many people realise commission is paid out through charges and some products can look "cheap" on the outside but its not always obvious what the charges actually are.

Again, we like to focus on IHT planning and active fund management. We will do other more mundane stuff but mostly only for existing clients or their relatives.

This may be possible with HNW clients who are in a position to take slightly higher risk in order to achieve higher returns and if actively managed that percentage target could be reached and surpassed. Its not so easy where a client does not want exposure to risk and therefore returns of 10%+ will be less likely - in this case they may be more suited to run of the mill savings products.

To be honest, your accountant or solicitor is not paid in relation to thier performance so why should an IFA?

Equally, if a client enters into a meeting with an IFA on the basis that the IFA is going to rip them off then the the IFA must do his best to calm those fears. If the client still continues down the rip off route then the IFA should really suggest the client go elsewhere. The majority of IFAs really do want the best for thier clients (I know we do) so if a client really bombards us with the "money grabbing salemens" attitude we tend to suggest they might look elsewhere.

The Snug Rhino

As ed has said above it depends on the client needs...many will not use funds where the FTSE is a realistic benchmark. and even picking a benchmark for various types of funds can still lead to issues where a client wants to take more or less risk than normal relative to the benchmark for that sector.

on top of that it would blur the job of the IFA and the fund manager IMO.

davyboy

I think a lot of SNers get their advice from Ocean finance.

The Snug Rhino

the problem is.....who would give advice? pensions are a perfect example of this, the commision on single pension to joe bloggs has pretty much gone - so who now provides these?

if i did not not get paid what i do 99% of my clients would be paying many ££££ more in IHT, have poorly written Wills and grim investments. very few people call up saying "i want to invest some wonga".....they respond to sales or marketing push. so while they ARE better off for meeting us....we have to go get them.

the only way to change that is to change the way joe bloggs regards FA but in this culture where taking responsibility for your self is lacking thats a pipe dream.

Reality

Surely a compromise could exist. If the Client wants to take bigger risks then load up the charges at the "Advice" stage. If you've told a client that the risk is low and the returns are the best why not back that up with lower set up and higher annual costs (provided your advice was good then everyone should be happy).

If your advice turns out to be worse than putting the money under your matress why should you continue to get .5% for monitoring just how bad it was ?