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Nic Cicutti: What was wrong with Linda Woodall’s free advice views?

Beware of handing out any form of business guidance to IFAs – especially if you are a regulator. This is surely how FSA head of investment intermediaries Linda Woodall must be feeling this week after wondering aloud why IFAs cannot offer a selection of their clients some free financial advice.

No sooner had Woodall’s words, uttered at a recent Personal Finance Society RDR seminar in London, been reported in Money Marketing than her remark was slammed as naive by angry advisers.

At the last count, there were upwards of 70 comments on the MM website, all or almost all of them extremely hostile towards Woodall. One or two were unkind enough to publish details of her brief online CV and presumed salary to try to prove she had “no clue about small firms needing to work their butts off in order to stay afloat”.

To claim that a management career in manufacturing and accountancy precludes her from understanding the IFA sector smacks of desperation.
Rather than caricaturing her argument to the point of absurdity, let’s try to understand what she was getting at, shall we?

Woodall remarked that some IFAs had approached her and said they currently provide a free service to clients with “simpler needs”. They are worried they will not be able to make a profit doing this from now on. Her response was that it might be possible for firms to offer a form of cross-subsidy, so some clients could benefit from a limited amount of free advice.

What is so astonishing about that? Contrary to many of the comments on Money Marketing’s website, there is no ban on cross-subsidising services to clients after the RDR. Advisers are perfectly free to charge clients what they want.

Indeed, in areas where the issue of cross-subsidy is of particular importance – for example, in the field of corporate pensions, where contribution levels among scheme members is likely to vary – the FSA is quite happy to see a degree of deliberate cross-subsidy.

So, for example, the FSA’s consultancy charging working group’s review of the corporate market in March specifically said a consultancy charge proportionate to contributions or member funds could be preferable to a flat charge which penalises lower-earners.

The second issue is that of profitability – is the provision of a free advice service, at whatever level, consistent with an IFA’s need to make money from a client he or she sees?

On the face of it, no it is not. If that were the only service the IFA provides and if a payment the implementation of product purchase decisions is not possible, then clearly the adviser would not be making any money. But that is not what the RDR is saying either.

Nor is the RDR saying an IFA cannot offer some form of free advice either as a “loss-leader” service targeting new clients who want an initial meeting to see how the adviser might deal with their financial need or paid for out of the trail commission earned from an existing client’s investments.

In other words, there are a variety of ways in which an IFA might decide how to approach how and when to offer “free advice”.

Will it always be profitable to do so? My own direct experience is that it depends. On a number of occasions in the past 10 years or so, I have been asked by IFAs and others to work with them on their brochures or websites.

On each occasion, I spend time looking through my prospective clients’ material and then meet with them. I suggest ways forward and an indication of what I can do for that business as well as what my charges are by the hour or by the day.

All that is “free” and the client is at liberty to hire me or otherwise or they can hire someone else, using my comments as a potential template.

Sometimes it works and I get the job. At other times, it does not. My charges reflect that, as does the fact that in many cases I choose to work pro bono for people who genuinely cannot afford my services at all. There is nothing in the RDR to prevent IFAs from working in a similar manner.

Which is why it strikes me that all the abuse visited on Woodall’s head reflects a deliberate misunderstanding of what she meant and what is possible under the RDR. The fact some advisers are forced to scrape the barrel in the way they have done is a sign of the desperately weak arguments they have left in the run-up to 2013. It does not bode well for them.

Nic Cicutti can be contacted at


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There are 22 comments at the moment, we would love to hear your opinion too.

  1. No it does not bode well for them which is why a very large number of firms will collapse in 2013/14. That in turn produces massive customer detriment, a loss of confidence in the whole sector and a concentration of levies/regulatory costs on the few that manage to remain. Whilst RDR has merits, the way things are going to pan out will quite probably be a disaster.

  2. Stephen @ Create Wealth Management Ltd 27th October 2011 at 12:06 pm

    Nic, to be fair to ‘the 70’, I think the point they are trying to make is that Linda’s comments almost suggest that’s what they should do rather than the industrys long standing proactice of offering ‘free’ advice when it suits them to do so, rather than some level of compulsion.

    In the same way you describe soliciting work and the ‘free advice’ you may give, that is your call as is your right. It also seems to fly in the face of the TCF principles driven very hard by the FSA these last few years; in that cross subsidy is unfair on the client paying the ‘higher fees’.

    I think it is frustration at her comments and the fact she represents a side of our industry that seems to constantly shoot itself in the foot, either by a lack of joined up thinking or simply one department contradicting another. Or does she honestly not understand what she is talking about!?

  3. A lot of the problem for those IFAs that will go out of business is that are just not used to talking to clients about how much they charge for their services. In most cases, when these IFAs do their client sgmentation exercise they will find out that cross subsidy is already happening. 80% of their income will come from 20% of their client bank. Has always been and will always be thus.
    The FSA are not telling IFAs how much they can charge for their advice. The market will do that as it does for all those advisers that currently charge fees. The learning experience that most IFAs will need to go through is not how to charge fees, it’s how to add value to their clients situation. If you can prove that, the fee can always be found.

  4. I can’t really see what the problem is here. Let’s say I have 2 clients in the same area. Client 1 has a large investment portfolio with IHT/LTC needs and a review meeting takes 2 hours for which I receive an annual fee of £200.00 Client 2 has a smaller portfolio and no other needs. Review meetings take 1 hour for which the fee is £100.00 If I were to visit client 2 in isolation it might cost me more than I receive as a fee (petrol, salary etc) but if they live reasonably close to one another, I have reviewed both clients with one set of costs. As I arranged to meet client 1 in any case is that client really offsetting the cost to client 2 even if the annual fee for client 2 was £20.00??
    The argument would only stand if I was to make a special visit to client 2 and that visit resulted in me being out of pocket. I’d rather work in this manner and provide an ongoing service to clients than leave them with either no ongoing service or god forbid passing them onto the banks.
    Client segmentation could be arranged geographically as well as profitably as long as everyone is happy with the arrangement.

  5. Fairness is subjective: one man’s fair is another man’s unfair.

    Under TCF the FSA has always said in effect: defined service for a defined price. They have never regulated as to quantum.

    They have also never said that if your client agreement says £300 per hour you can’t work for free for some clients either now or in the future.

    All the FSA is now expliciting stating is something that has always been the case – in a post RDR world cross subsidy is OK.

    Whether that is fair is probably depends on your point of view. Whether you can make any money out of operating on that basis is another question entirely.

  6. The whole RDR concept is flawed because it bases IFA value on obtaining products at “Factory Gate” prices. I believe that Standard Life have already said that they will not do this and, as a mortgage broker, I have seen extremely cynical behaviour from the financial institutions that do not bode well for the future. Competition may help but I am afraid that commissions not paid will end up in the pockets of shareholders rather than those of consumers.

  7. Nic

    I am glad that you used the expression “cross-subsidy” in your article because actually I think that is what is being discussed.

    If the cost of delivery to one client is paid for by the revenue generated by delivery of advice/products to another, then it isn’t free, the second client paid for it.

    I can see though why the first client thinks it is free because it cost them nothing.

    That model seems to continue to work under RDR if that is what the IFA wants to do nothing stops them doing so and I guess that is what Linda was saying?

    Your description of the way you work is a cross-susbidy based approach it isnt for free

  8. I do agree with most comments above. There is a contraction between RDR, TCF and now providing free advice and cross subsidy. If, like many others I have misunderstood that fact then surely it a failure to communicate clearly by the FSA and needs to be clarified. Until then I will not be offered ‘free advice’ after 2013 as I do now. It is not that I dont appreciate your points Nic or Woodalls comments. It is just that the last decade has shown the regulator to be an organisation that will bend the rules to suit its argument and even contradict itself from differing departments. Sometimes that has left businesses destroyed or severly damaged. Better to tread carefully & cautiously than accept things at face value.

  9. Nic
    Bless you, you do like to stir it up don’t you.

    The issue with “free” advice and “cross subsidy” has been negated by the ban on commission, unless of course you wish us to build into our charges an element of cost for giving “free” advice and pro bono services to the public(on top of everything else we have to pay for being privileged to run our own businesses)

    The cross subsidy so often despised by the regulator under the commission system, enabled all IFAs to engage with less well of clients who needed some advice and guidance on their finances, which was not profitable and in some cases did not generate any revenue.

    Now some idiotic belief that IFAs have a duty to provide a “free” advice service to consumers who are going to ultimately be disadvantaged by the increasing costs of regulation, the totally unnecessary banning of commission on investment business, which will increase fee charges, is quite frankly naive, inherently ignorant and demonstrates a complete and utter lack of understanding of what our function is.

    We are not charitable organisations, my charitable donations are mine to make by choice, not by regulatory obligation.

    Simply put the lady making these comments needs to get from behind her desk and spend a week or two in the shoes of an iFA, not pontificate on something she has little knowledge of.

  10. Typical Ciccutti pap.

  11. The definition of “Free” includes “Independent”.
    “Not under the control or in the power of another; able to act or be done as one wishes”.

    That is what it used to be like long ago for many advisers who weren’t ‘tied’ to one provider. Now look at who is pushing and pulling you in all directions.

    Back to the subject of ‘free advice’, many professions are happy to discuss simple issue on the basis that the enquirer is either an existing client or may become one simply because the professional didn’t charge a fee because he/she didn’t consider it was worth raising an invoice.

    Advisers who make a habit of doing something for nothing all day long won’t last while those who always charge for even the most basic of advice by making it more complicated may exclude those who may one day become valuable customers.

    I can see both arguments here but will the RDR make it more difficult to justify cross-subsidy? Well it may do so for a number of reasons but how many clients will know that they may be paying for the advice others receive? Would that fit in with the FSA’s TCF rules or whatever they are?

    The advisers I talk to say they will probably stop giving ‘free advice’ simply because it might come back and bite them in the regulatory bum.

    What has regulation done for society?

  12. Nic, I’m struggling to recall an occasion where you don’t try and stir the pot and raise an argument from the comments of others. The 70 who posted are probably the tip of the iceberg and of course you know what the real issue is. IFA’s feel marginalised by a regulator that can say one thing but want something entirely different. If someone at the FSA says they don’t see why things have to change under RDR what reaction did you or they expect? To quote Socrates; and in knowing, that you know nothing, makes you the smartest of all.

  13. Almost as bad as a would-be financial journalist knowing everything there is to know about the industry or a least commenting as if he does.

  14. Nic

    All advisers offer a free service to their clients, whether they like it or not. It’s called MAS and this year has cost me £170.79.

    More pertinently, the FSA in Feedback Statement 08/6 stated, “A regulatory proposal that implied a shift towards a mainly fee-based remuneration structure would mean that these cross-subsidies may no longer be sustainable in their current format although other ways of cross-subsidising may arise. Also, if fee-based remuneration was fixed across all product categories (e.g. hourly-fees) it would probably mean that the cost of advice would become disproportionately high for small-size cases to the detriment of consumers.”

    In other words, the FSA accepts that losing the potential for cross-subsidies means that consumer detriment is likely to occur.

    Funny then that the RDR provisions effectively kill off the ability to cross subsidise. Using the form of logic encapsulated within the RDR this means that RDR = consumer detriment. Wonderful.

  15. Its not rocket science is it?

    Client one earns me £500 in an hour. Client two earns nothing but I look after him because I always have.

    Post RDR client one may now earn me £300. Client two no longer gets the option because I am looking after client treewho will earn me £200.

    Earnings will, initially be down. I have to make that up somehow.

  16. More Tosh from Nic “How the hell can I fill newspaper space this week” Cicutti.
    I remember Nic many many years ago spouting that there is no such thing as free advice, typical Journalist, more U turns than than the old Labour Government. Watch this space for next weeks garbage!!!

  17. In general terms, I’m happy to offer some free advice in the course of the initial FactFinding meeting but, beyond that, no fee means no advice. That’s business and my business isn’t funded by charitable donations, local authority grants or compulsory levies.

    Were the majority of my clients paying an ongoing monthly subscription for access to my services and I wrote to them all informing them that their subscriptions will be rising in line with the rate at which my regulatory costs (and my PI Insurance premiums) have increased since last year, I would expect most of them to cancel the arrangement without hesitation. The FSA, on the other hand, has the luxury of being able to issue its increased levy bills on the basis that we either pay up without dissent or pack up. The mindset is very different.

  18. i enjoy reading money marketing every week.

    it is sent for free,which i assume is cross subsidised by the companies that advertise in it.

    i guess nic gets paid for writing his articles,so is he also not being subsidised by the insurance companys and financial advisers ,who pay MM to advertise and then MM pays nic for his contributions to money marketing.

    if this is the case he is a good example of cross subside.

    unless he does one issue in every four for free.

  19. Incredible! an unaccountable regulator that doesn’t know what it’s doing, more proposed ill thought out changes than any other industry I know and to cap it all an edge of a cliff deadline just over 12 months away! you just couldn’t make it up. What person in their right mind would want to stay in this industry let alone join it!. I have a loyal fee paying client bank who will shortly be told I have had enough. Well done to all these people who have no idea what they do or the consequences that will follow from their ill thought through actions. Congratulations Mr Sants and co have a nice christmas.

  20. Old Dog, can I respectfully suggest that you have the courage of your convictions. If you wish to insult Nic then I am sure it won’t be anything that he has heard before. Hiding behind a cowardly pseudonym however is nothing short of disgraceful.

  21. Nic, I have no doubt that you would be one of the first whinging from the rooftops if your IFA charged you an extra few quid in order to provide a free service to your less well-off neighbour.

  22. Do we think that the problem is the way that the original story and quotes were reported?

    People don’t know what they don’t know. If you tell them half a story then the responses you get will not be accurate.

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