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Bamford: Boring is good

I wish more IFAs were boring. Boring is good when it comes to delivering financial advice.

Recently, we have relished our boring approach to investment advice. By keeping things simple, we have been able to avoid the exciting funds which have failed so spectacularly.

If only more IFAs had stuck to traditional investment funds rather than pushing the next new thing, it would have almost certainly saved us the cost of our FSCS interim levy earlier this year. More importantly it might have helped to improve, or at least reduced the damage to, the reputation of the IFA sector.

The delivery of good financial advice should never be dull but the best advice solutions usually are. Paying off debt, keeping money in cash or switching a few funds within an existing pension plan are often the best course of action. They are rarely the exciting or remunerative solutions an adviser would want to deliver to their clients.

When we read FSA reports of compliance failures around inappropriate investment advice, it always prompts the question ’why?’ What motivates someone to leave the well-beaten advice path in order to recommend funds that could best be described as esoteric? What possesses an otherwise intelligent individual to think a brand new, complex investment fund is ever a good idea?

It’s often suggested that commission plays a role in this wacky decision-making process. Plenty have argued that the commission levels on unregulated funds or structured products are not substantially higher than that available from mainstream funds. Therefore it seems that the desire to impress clients is the root cause of bad investment advice.

In an environment where interest rates on cash are so low and investment markets can be wildly volatile, it is little surprise that some advisers feel only exotic funds will do. Despite decades of evidence to the contrary, there will always be some who feel it is possible to break the unbreakable link between risk and reward.

So rather than simple investment recommendations, some advisers will always recommend what the majority would never dream of touching.

We can only hope to see less of this, improving the reputation of the sector and reducing the cost of compensation when things go wrong.

Perhaps the wholesale introduction of adviser charging and an improvement in standards by the end of next year will prompt a return to sensible recommendations. Perhaps it will result in the new Financial Conduct Authority treating the IFA sector with a little less disdain than that shown by its predecessor. I’m not holding my breath.

Martin Bamford is managing director of Informed Choice

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Comments

There are 23 comments at the moment, we would love to hear your opinion too.

  1. Spot on Martin. Too many advisers have recommended funds that they probably don’t understand fully to clients who most certainly don’t. Throw in commission on unregulated stuff and you have a volatile mix.

    Boring is good!

  2. Incompetent Regulators Award Team 28th July 2011 at 12:59 pm

    If everyone was like this man we would live in a very boring world. Only a few months ago the old Bamford posted on a web site that IFAS should be up with technology, only for me to point out that the second richest man in the world Warren Buffet doesn’t use a computer!

    I am an exciting IFA offering exciting products which are probably the same as Bamfords team. The only difference is that I am not boring……………..

  3. Martin Bamford 28th July 2011 at 1:08 pm

    @Incompetent Regulators Award Team

    Please re-read the article, particularly the part where I write:

    “The delivery of good financial advice should never be dull but the best advice solutions usually are.”

    I would always argue that we are one of the most ‘exciting’ firms of Chartered Financial Planners. This doesn’t mean our investment recommendations need to be ‘exciting’ as well!

  4. John Blackmore 28th July 2011 at 1:10 pm

    Couldn’t agree more regarding the first part BUT am concerned about the last paragraph.

    RDR in general can only be expected to make things worse:

    1) Advisers are facing higher regulatory charges and naturally will want/need to pass these on to clients. where 0.5% pa was once the norm for trail it is likely that 1% pa or more plus wrap/platform costs will beome common. In order to receive these higher charges the adviser will be required to demonstrate a level of service. The result will be activity for its own sake and far more complex solutions – simply to try and convince the client and the FSA that these higher eye watering charges can be justified.

    2) Exams. Even though level 4 is fairly Micky Mouse and should not be seen as anything like a proper professional qualification Advisers and their clients may well see “Being Qualified” as somehow worthy of higher fees – again leading to more unneccessary expensive complex advice and products.

    A boring simple tax efficient Sandler type product would certainly suit the vast majoirty but unless the product or advice can be made to sound complicated there is a limit to the amount that can be charged

  5. I can understand the views above. We are a SIPP Provider and see both sides of the coin. I would simply state that there is a time and place (and clients) for both types of approach. It’s getting the right approach for the right client that is the key.

  6. Hi Martin

    I’m not sure most readers understand what you mean.

    It would be useful to define some terms.

    What do you mean by exciting and boring?

    There is a tendency in this context to be rather selective in giving examples of “boring” and “exciting” funds to support an argument which cannot be approached in this simplistic manner.

    Personally I regard all investments as cold fish – capable of being boring or exciting dependant on circumstances.

    For instance Russia is a fairly exciting place to invest on the face of it, but at times, one could argue that it is more boring than a bond fund?

    I think one has to be very careful about adopting broad brush positions and applying soubriquets when considering the appropriateness of investments. Circumstances dictate too often what is regarded as exciting in hindsight.

    That said, I do agree that anyone who recommends an investment because it is new and fails to understand the detail, fails to do the due diligence, is failing everyne concerned.

    Ian Coley
    Partner
    Medical Investment Services

  7. I bet business clients who ended up with employee benefit trusts wished their advisers had been boring.

    Client: “What are we going to do about it then?”

    Adviser ” Don’t worry we will sort it out after you pay us another massive fee for sorting the mess we put you in”

    Here’s to dynamic people providing good and simple advice.

    @ExpertFinancial

  8. @ Incompetent Regulators Award Team

    You mislead the readers of Money Marketing I am afraid. You are so boring you hide behind the mask of anonymity 🙂

    Dull in the extreme

  9. The problem is not the exoticness of the product, but the understanding of this and its place within investment portfolios. Investment advice and financial advice are 2 entirely seperate things, yet many uninformed IFA’s simply create portfolios without any understaning of the component parts, never mind how they blend successfully. Yet they continue to do so in order that they may justify their renewal fee’s. The current IFA investment exam requirements are laughable at best; when will the regulator finally take the provision of investment advice seriously?

  10. To Martin Bamfiord

    Spot on – keep up witht the good boring work

    To @ Incompetent Regulators Award Team

    Please do us all a favor and leave the industry for something that will excite you and leave the advice to people like us that have customer best interest at heart!!!

  11. I can only assume Martin has been listening to his Father. Well done for listening and learning.
    I was labelled boring too many years ago to mention and I still am. The only thing I would say is that qualification do not give people common sense and of course common sense is boring but it does not appear to be common.

  12. Brian Weatherley 28th July 2011 at 2:12 pm

    “lust”- an intense craving. There is no justifcation for the use of such a word simply to give emphasis to a pre-conceived notion of the author. Why not keep your prose boring but relevant.

  13. Julian Stevens 28th July 2011 at 2:19 pm

    As I have said at least once before, there are certain immutable laws of economic gravity which can perhaps be defied for very short periods, but ultimately, as the adage goes, if it looks too good to be true then it almost certainly is.

    Any experienced investment professional will tell you that the best average annualised return you can expect from a sensibly diversified portfolio of predominantly equity based investments is about 10%. If that’s all you get, then you’re doing pretty well. If you get better than 10%, then you’re doing very well. If you get much better than 10%, then in all probability a severe correction lies just round the corner.

    The best we’ve managed with a properly balanced and then regularly monitored and reviewed client portfolio is to get it from £12,000 to £59,000 over exactly 15 years. This equates to an AAGR of 11.2%, with which I’m pretty happy and, more to the point, so is the client.

    So yes ~ a good article.

  14. By the time an investment has become “exciting” ie in the spotlight of the masses it has more often than not run its course or worse completely fits the description “too good to be true”.
    If more advisers had kept to “boring” in the past then the FSA would arguably have much less to occupy themselves with today.
    “Boring” is also often much easier for the adviser to understand and to then communicate to their clients.

  15. Martin, you are either really good at offending people or perhaps they are jealous of you?….another article that makes sense to me anyway but you still get attacked…keep it up !

    Adrian

  16. Peter Maxwell-Lyte 28th July 2011 at 2:30 pm

    I have discovered that Vanguard and Dimensional funds could be seen as boring. But even if they are “Beige” – I find talking about them and introducing them to clients – exciting!

    I have to admit that I was taken in with the Feeding Stations and chilli pepper and the Doctor’s list of AIDS orphans. It taught me a serious lesson. Be passionate about funds which are not just attractive because of the passionate way they were presented!

  17. So if boring if good then Bamford is excellent! Its that smug hollywood photo of a sixth former that seems gets me plus he seems to be a leading authority on all things to all men/women!

  18. I dont agree with most of Martin’s views particularly regarding RDR, qualifications, etc BUT shock horror – I do agree with most of this.

    Well done Martin there is hope for you yet (joke) !!!

  19. I think Mr Bamford – I don’t know him but I met his dad – is trying to say that the great majority of clients don’t want to lose too much and are pretty happy if their nest eggs hold their value plus a bit. I suspect that some IFAs are attracted to exotic propositions because superficial knowledge of them impresses the client.

    In ten years dealing day to day with IFAs I doubt I met more than three who understood any of the then variants of With Profits. I doubt I’d find many today who could describe in words of one syllable how a synthetic ETF actually works.

    The regulator should make much more use of permitted activity constraints. Such constraints would have cut off the SCARPS and other disasters at source.

    RDR is an irrelevant mess, but it does mean that in four or five years’ time the regulator can employ another army of pen pushers and associated consulting cohorts to establish how the industry is to blame for the fact it hasn’t worked.

    What comes around……

  20. @Graeme Laws: I doubt you could find three people who understand synthetic ETFs at the firms which run synthetic ETFs.

  21. Well said Martin.
    Keep it simple – use well proven risk assessed portfolios that aim to get the client to where he wants to be with the minimum risk.
    Enough is enough after all.

  22. To Martin Bamford

    As always good common sense advice from a trusted source!

  23. As someone put it to me recently – there are two types of UCISs – the ones that have already failed and the ones that haven’t, yet.

    A sweeping generalisation, I know, but why take the risk?

    Thankfully, we don’t have many ‘sophisticated investors’ to market them to in any case!

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