A well-known financial journalist in another trade paper recently endorsed the idea that no provider, including wraps, should be able to pay fees direct to any adviser. Commission on protection, according to the rant, should also be banned. The journo in question also writes for the Daily Mail which according to my friends in the FOS is the paper read by most of their complainants.
About 25 years ago, I took a couple of years out of financial services. I had started at Hill Samuel aged 16 and thought I should see what was outside the bubble.
I spent the first few months despatching until I realised that riding a motorcycle for work was destroying the pleasure I got out of my main leisure activity. I then went to work as a sales rep flogging insulation to builders and plumbers merchants against the backdrop of global warming and the warmest winter for 100 years.
Finally I fetched up at a fitted bedroom company in Leeds. Pretty soon I learned what credit control was all about.
We’d fit a bedroom costing thousands of pounds and send the bill whereupon customers would withhold payment and start game playing. Every possible reason would be conjured up as to why they should now get a discount. The fitter had supposedly turned up late, for example, or had got sawdust on the carpet or had failed to make a fuss of their cat.
Friends of mine in manual trades, I’ve since discovered, have the same problem. Once the bricks are laid, the paint is on the ceiling and the plaster is on the walls, you can’t really take it back. Dishonest customers know this and exploit it as a reason why they should not have to pay the full amount. As litigation is time consuming, expensive and uncertain, all too often they get away with it.
Financial advice, of course, is no different. Once the client has had it you can not take it back.
In my business we have had five complaints in eight years. Four only arose at the point where we asked the client to send us the fee due and in all cases the complaints only arose at the point where we threatened litigation if they did not pay. Three concerned mortgage advice fees of £295 each and the other a pure advice fee of £470 for some investment and trust advice.
None of the complaints were upheld, none went to the FOS and they all paid. I always litigate however small the amount. My success rate is 100 per cent. I believe in deterrence of the dishonest. The fifth complaint, in case you’re wondering, wasn’t upheld either, but that’s a story for a future column.
If advisers lose the facility to have fees paid by wraps and providers then that inevitably increases the cost to firms. It is not about disguising commission, it is about credit control. Increase our costs and the consumer pays more.
Where, then, does that leave the regulator’s underlying and undeclared, but very real, agenda of reducing advice charges and the still enormous protection gap? Where the law of the land is the law of unintended consequences?
Why do the exponents of ‘hard’ charging not take it a stage further? Fund managers could send out bills for annual management charges rather than deducting them from the fund. Reassurers and insurance companies could bill their premiums separately. And journalists, of course, could invoice their readers…
Neil Liversidge is managing director at West Riding Personal Financial Solutions