To Ron Sandler
I have just read the open letter to you from a group of IFAs and felt it would be appropriate to express an opinion that I have yet to see expressed elsewhere. They say you are questioning whether there are alternative methods of remuneration for IFAs and comment on the suggested cap on commission.
I have recently completed a Master of Science degree in Managing Change and it seems to me if we are to manage the change that seems to be a desired outcome from this and previous reviews, then all sides of the issue need to be addressed. The one that is consis-tently overlooked is what is the alternative to commission?
We do have an alternative – to pay a fee for the service provided by the professional IFA.
I listen to the radio frequently and am frustrated many times when the way that IFAs are remunerated is misrepresented, often slanderously.
Clients can choose to pay fees if they do not like the idea of commission. The question I ask myself is – who benefits from the fact that this is rarely mentioned?
Why is it rarely mentioned? When given the choice, clients overwhelmingly prefer the IFA to be paid through commission rather than the client paying a fee.
Independent financial advice is valued but we do not have a culture where financial advice is paid for.
This review and others previously are starting at the wrong place. Do we accept people need to be encouraged to save and protect themselves and their families against financial hardship?
If we do and if the adviser is not to be paid commission and the customer is not to pay, who will pay the adviser to plan financial strategies for people?
How do we change our culture so that financial advice is seen as valuable and necessary and payment for which is our responsibility?
In what other professional field is every single element of advice and product subject to such scrutiny? I can go into hospital to have an operation advised by a doctor, only to die because the equipment is faulty or used more than once against manufacturers' advice. And this is a service provided by the Government.
It appears to me that the Government and IFAs share the same objective. Both have an interest in encouraging the public to save and provide for themselves rather than relying on the state We have a potent mix of an increasingly vocal ageing population, a tendency for earlier retirement than was usual in the past and a demand for ever more expensive health care from the state into old age.
It is vital that an intelligent and thinking Government tackles the potential problems with innovation and creativity. It would seem to me that a Government that was really intent on tackling the possibility of an inability to fund pensions and benefits for a vast number of its citizens at some point in the future might see financial advisers as useful partners.
But is this happening? No. We have had review after review which do nothing but attack the people who could and should be in partnership with the Government. It must make the thinking IFA wonder whether there is a hidden agenda.
Take the stakeholder example. The Government saw it needed to get more people into pensions and possibly thought that to cut out advisers and get employers to act as unpaid agents might be cost-effective. The future of perfectly good company pension schemes, into which employers were contributing, and where vast numbers of staff were getting independent advice as a spin-off from highly qualified IFAs like myself was put in jeopardy by the introduction of stakeholder.
Strangely, in this Alice in Wonderland world, the employer had to choose between a: increasing his voluntary contribution into the existing company pension arrangements, which IFAs ran and which most staff joined or b: scrapping existing arrange-ments, setting up stakeholder arrangements where there was no responsibility to contribute and no IFA to run it or encouraging staff to join.
This was supposed to increase participation in pensions? Or was it an undesired outcome of a project that employed no form of scenario-planning? In general, low-paid staff will not rush out and join a pension if a notice on the noticeboard simply says: “Your employer has designated Company x as our stakeholder provider.”
The open letter is correct. IFAs should be involved in this latest review. But perhaps not in the way suggested in the letter. I believe the required change is more fundamental. If the Government sees a role for financial advisers in delivering to the public the advice needed to equip themselves for all eventualities, then the Government and and financial advisers need to work together.
They need to assess what is required in the long term, in terms of private and state provision, for pensions, savings, life and health protection, and how best to deliver the products.
If the Government does not see a role for financial advisers, then this should be made clear so IFAs can make an informed choice about their future.
I am proud of the business I have built, advising clients to the best of my ability, having feedback about the level of comfort they have, knowing that, if it were not for my involvement, their lives would be very different. I am depressed and frustrated by the damage done by ill-informed reviews and press hype.
To people like myself who care about what we are doing and the service we give, the inevitable outcome of more of the same from your review will be a gradual exodus of IFAs from the industry, leaving the way clear for the kind of institutions who were responsible for misselling in the past.
Sparrowhawk Finanacial Planning,
Pivotal age is not the only factor
I do not feel the pivotal age is the only factor to be taken into account in recomm-ending whether one should contract out of Serps. There are several highly relevant factors:
1. If one were single, contrac-ted-in and died even one day before official age of retirement, all the Serps' pension earned would be lost to the state. The effect of premature death benefits the state.
2. If contracted out, the benefits can be drawn between 60 and 75, providing for much greater flexibility.
3. Pension fund withdrawal is available. That could provide more options in the event of death during retirement before 75.
Client Care Financial Services,