Many years ago, when I first started writing for Money Marketing, I remember believing all financial advisers must be exceptionally rich.
How could it be otherwise? After all, here was a group of individuals with an exceptional understanding of how markets work.
By definition, if they could advise clients how to make their money work hard for them, how much better they must be when it came to looking after their own financial affairs – or so I thought at the time.
It was only after a few years – and in the wake of meeting hundreds of advisers from all over the UK – that it gradually dawned on me most IFAs are as skint as the rest of us.
The reality is that, with a few exceptions who have done exceptionally well, for the vast majority, this is a job where you do well if you manage to hold your head above water over several decades.
Twenty years later, if I had to hazard a guess about the likely earnings of a typical IFA, I’d probably put them on a par with successful plumbers, cab drivers or electricians: comfortably off but no more. And unlike those two other occupations, IFAs don’t get the chance of nice little cash-in-hand jobs.
Which brings me to Paul Myners, briefly Financial Services Secretary during Gordon Brown’s time as Prime Minister. Lord Myners, who was also chief executive and then chairman at Gartmore, came under fire from Money Marketing readers for allegedly claiming “fund managers and intermediaries have become rich at the expense of private investors.”
Not only, but it was also claimed that while a minister he had witnessed at first hand the financial services industry’s lobbying of Gordon Brown’s government “so it could get preferential treatment – at the expense of private investors.”
Lord Myners’ comments led to financial advisers attacking him in Money Marketing, both in the paper’s printed version and online, for a range of perceived slights towards them, not least the claim that they have become fat at the expense of private investors.
Given what I have just said about IFAs’ earnings, it would be tempting to agree with Lord Myners’ critics – although why anyone should be amazed at the industry’s desire to lobby governments of all hues to its own advantage is beyond me.
Unlike Myners’ critics, I did something rather unusual last week and read his evidence to the House of Commons’ business, innovation and skills committee on February 14. His comments appear in about 27 densely-argued pages, where he is primarily responding to the Kay Review of equity markets and long-term decision-making.
And here is the thing: he did not voice his concerns in quite the way many implied. So what did he actually say?
Lord Myners central argument is that the Kay Review has failed to address what he sees as key flaws in the structure of UK corporate ownership, namely the extreme short-termism encouraged by many institutions who have little long-term interest in being “true economic owners” of the companies they hold shares in.
If they don’t like what a firm is doing, rather than behaving as activist shareholders they sell up their shares and move on to another company. “This model… works well for the fund managers and for all those who are giving advice, such as the consultants and the intermediaries.”
But it does not work well for ordinary investors, who see shares in the companies they invest in bought and sold repeatedly, with little attempt to “take a real interest in what the company is doing.” Lord Myners goes on to say: “The problem is that our big companies are now owned by share traders. They are not owned by investors.”
Now, my own reading of these comments is that while Lord Myners uses the term “intermediaries”, he is not picking on IFAs here but primarily those who are involved in buying and selling shares and others who advise them.
In pointing out that the vast majority of unit trusts – he claims the figures is 90 cent – underperform the FTSE 100 share index over periods of five years or more, his comments are something that many IFAs would agree with too. Insofar as most investors place their money in such poorly-performing funds, they lose out as a result of rapid trading in and out of individual company shares.
Now, you may agree or disagree with this analysis – I found myself at odds with his view that it was lobbying by the funds industry that led to Isa tax-saving status being offered to them alone, as opposed to individual company share ownership.
After all, pensions also have favourable tax status, including defined benefit schemes, while EIS and VCTs have always been available for individual share owners. The issue is one of risk diversification rather than focusing on single versus collective share ownership.
But the vast, vast majority of his 17,000-odd words of evidence to the committee are wholly unexceptional. Quite why anyone is getting so aerated about it is beyond me. Unless they’re fed up earning as much as plumbers and sparks..
Nic Cicutti can be contacted at firstname.lastname@example.org