The meaning of free advice

It had been my intention this week to write about the interview given to Money Marketing by Aifa director general Stephen Gay and the trade body’s chairman, Lord Deben.

There are a few little nuggets worth teasing out in their dialogue with MM editor Paul McMillan, which I hope to do at a later stage.

But that will have to wait a little while because, in a straight choice between the words of two grown men sitting cosily next to each other on a sofa as they finish each other’s sentences and the opinions of real-life IFAs who read this paper, it is the latter who win out.

Last week, I wrote that the reason why many financial advisers opposed the RDR was not the requirement of having to meet the FSA’s new qualification requirements but the move away from a commission-based system of remuneration.

I had expected a massive tirade against my remarks, yet, when they came, the comments were much more nuanced.

They are striking by their anger, honesty, naivety and – to my surprise – occasional agreement with the views I was expressing.

For example, there is the adviser who wrote, condemning my “anti-IFA rant” and then adds: “I totally agree that there were many useless IFAs before regulation. The FSA has not really changed this position and we all know many of the original failures just left the industry.”

Wasn’t that one of the indirect aims of regulation, to make life so tough for some that they left?

Confounding my suggestion last week that the majority of IFAs opposed to the RDR were those over 60 or approaching it, one email was refreshing: “There is a lot of truth in your accusation that many IFAs are mainly concerned about the loss of the old-fashioned commission option.

“I am just 60, and have spent all my life in financial services. I very rarely take full commission (maybe for a very small case), and always raise the issue of costs/charges/ commission. Occasionally, I charge a fee instead.

“However, as we get older, it becomes more difficult to retain information that is only required for exam purposes. I had 110 points of the necessary 140 points at the beginning of the year. I took the G60 exam out of choice many years ago, and enjoyed it. Last week, I passed the R04 exam, after stressful studying. Only 20 points to go – hooray.”

Another adviser, who has spent more than 30 years in various areas of financial services, wrote: “I am in my mid-50s. I do not agree with you [that advisers are more concerned about commission income rather than examinations] but I think you might have a point.

 ”I am fortunate in that I was offered access to occupational pensions when I first started working and, for me, retirement income will not depend on my earnings from client commission.”

But he adds: “I know that a lot of advisers have built a business in the hope that trail income and perhaps some business premises will become their income stream into retirement. In my opinion, that is complete stupidity.”

Contrary to my assertions last week, for this adviser, it is the challenge of obtaining the new qualifications that matters: “Like many people of my age, I find absorbing and retaining information is difficult.

“I am not against training or developing new skills but having my future determined by answering questions in a three-hour exam is awful I fail to understand why the regulator cannot sample the advice I given to clients over many years and then be in a position to evaluate my ability, skills and knowledge.”

By contrast, another IFA wrote in: “The advice sector continues to be populated by one-man-band, under-qualified, second-rate individuals whose business model is predicated on the acquisition of one or two new clients each month and the necessity for each of these new clients to generate disproportionate levels of commission.

“The RDR has made such a business model defunct and thank goodness for that, the advice sector will be a much healthier place without these people – and you’re right, I am only 46.”

Another adviser simply said: “Hit. Head. Nail. On. Just to bugger up your email stats further, I’m 42.”

Unfortunately, confusion still reigns on the issue of whether, in a commission-paying environment, advice is “free”. One IFA told me: “I have never given clients the illusion that advice and my work is ’free’, I deal with people who are more sophisticated than that.”

By contrast, another said: “All my advice is free to the majority of my clients who choose the commission route. I will have two appointments with them and in between first and second they would receive a full written report from me. If at the end of the second appointment they choose to walk away it has not cost them not one penny. In my naive little world, is that not free?”

It might be – but is this a viable business model? You tell me.

Nic Cicutti can be contacted at