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Paul Lewis: Advice industry addicted to commission

The advice industry remains “addicted” to commission and must make radical changes to seize the opportunity presented by the Government’s radical pension reforms, says financial journalist Paul Lewis.

Speaking at at the annual Personal Finance Society conference in Birmingham today, BBC Moneybox presenter Lewis said despite the RDR the “spirit of commission” lives on in products such as equity release and through adviser charging.

He said: “Although commission is banned, the industry is so addicted to it, it sneaks in in the back door like a smoker who sneaks out for an e-cigarette.”

Lewis said the “risk reward agenda” is a myth designed to attract clients towards more profitable products, as is active management.

He said: “It is only when those vestiges of commission are cleared will the advice profession be trusted again.”

Lewis said advisers will need to advise on all areas, including care fees and debt management, and offer their services to consumers regardless of the size of their pension pot, in order to take advantage of the pension freedoms coming into force next April.

He told delegates: “The traditional areas of pensions and investments will not be enough for advisers wanting to advise on the pension freedoms.

“Advisers will need to know how it impacts means-tested benefits, and give advice on inheritance tax and care home fees. Many advisers will have to broaden their knowledge.

“Scrap risk appetite and fund selection and learn what the effective interest rate is on £40,000 worth of premium bonds. I also urge you to consider charging structures – these people will not need ongoing advice, and advisers should move to a simpler fee structure such as an hourly rate.”

He added: “Advisers should be willing to show someone with £10,000 the basics in as friendly a way as a client with £1m, in the same way a plumber would still help with a basic problem.

“Some of it will be less profitable and some of it will be more profitable, but you are an adviser, you should do everything.” 


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There are 38 comments at the moment, we would love to hear your opinion too.

  1. I think I understand why Paul thinks that adviser charging (I assume he means based on a percentage of invested money) is representative of the spirit of commission but isn’t this just a rehash of the Martin Wheatley view of “dealing bias”?

    “Some of it will be less profitable and some of it will be more profitable, but you are an adviser, you should do everything.”

    I absolutely don’t agree with this statement it doesn’t make any commercial sense at all. I think too many commentators don’t understand that intermediaries are in business to make profits. Cross subsidy (as described) is simply another terms for “reduced profits”

    Still it’s not the critic who counts is it?

  2. We have operated in this way for many years now, Mr Lewis is just trying to appear to be the White Knight here and blacken the adviser industry yet again.
    I would advise the man to get some qualifications first and then he may learn the basics.

  3. Martin Bamford – agreed, Paul Lewis argues on a very narrow basis, like most journalists. To have a proper debate requires far more column inches, and we never get them.

  4. The plumber analogy is flawed. At least around here, no plumber will talk to you unless you pay a significant call-out charge, generally much increased evenings and weekends.

  5. @Paul – I dont think it takes qualifications to realise that the reputation of the advice industry is less than ideal. I also don’t think it takes qualifications to understand what consumers need or value.

    I am often bemused by the automatic defence of anything slightly critical, rather than looking for areas where the commentator may be right and how we can apply solutions to these issues.

    I think the points made on expanding the scope of advice to follow the emerging needs of consumers is an important one. As is the need to be flexible with charges (not profitability) to meet consumer needs.

  6. I do enjoy Moneybox, but do feel the programme is sometimes another version of Rogue Traders. As has been mentioned, I do wonder whether Mr Lewis really understands the way we assist our clients. We often go above and beyond being financial advisers and give opinions and suggestions on many other areas. We will never be perceived the same as an accountant or solicitor. With the time I give some of my clients, if I charged by the hour, the bill would be well over £2,000.00 for arranging a £15,000.00 ISA. I certainly do not think about the profitability of each client. Perhaps I should.

  7. I am in business to make a profit and the FCA et al have done everything they can to stop that happening. Mind you, I charge a reasonable amount bearing in mind qualifications and statutory costs and maybe I should increase my charges. However it is much more cost efficient to deal at the higher end of the market. That’s the market I aim for, if not always getting there. Sadly I don’t make money dealing with people on benefits. Although I am happy to inform or provide guidance for such individuals on a pro bono basis. What Paul Lewis forgets is that as business people we decide our market. I am comfortable with mine. Philanthropy I reserve for out of business hours.

  8. Oh for Christ’s sake get over yourself Paul Lewis !!

    We are regulated we do play by the rules !
    He said: “It is only when those vestiges of commission are cleared will the advice profession be trusted again.”

    What ? you mean to say we have been trusted !!! can you tell me when this was as it might be easier to return to that point in time ?

  9. Where Paul Lewis is absolutely spot on is in the particular case of Equity Release. The commission rates are obscene. Also he isn’t reported as having mentioned the commission on life products. Why pay more commission if a client is unfortunate enough to be rated?

    ALL commission should have been banned. This is just another lash up by the regulator – along with the daft definitions of Independent & Restricted.

  10. brian weatherley 6th November 2014 at 1:18 pm

    So Mr Lewis, regardless of the circumstances of the client you would rather the industry dealt only in “fees”

    As someone who has dealt extensively with another profession which charges fees and would not touch commission with a barge pole, I think I know when a client is best served financially. For example, a % of a capital sum invested paid on completion is almost without exception a lower sum than the “pay for the work undertaken” approach. As a Trustee of a Family Trust I have learned the hard way over some 30 plus years that legal beagles do not undertake any activity for which a payment, fee, is not paid. Is that what we want?

    The FCA should impose the % rates associated with various the various transactions IFAs undertake but for which it is the regulatory body and let the public know accordingly.

    But tell me, why is “commission” such a reviled word in personal finance? Many professions earn their living from commissions and commission; not fees nor pseudo salaries. Yes, we have seen IFA excesses in the past but that is not unique. For example, a well known Bldg Society operating through the Client’s accountant who charged 8 (eight) % on £400k invested in a With Profits Bond in 2003. Effective supervision of our industry will rid us of such villains, and Public awareness will make the earning of commission acceptable to all sides.
    Meanwhile,The media must stop using the word as a stick with which to beat the IFA sector while raising inflammatory headlines , such as “rip-off”, or “scandal of” etc to justify their approach.

  11. Paul Lewis, never taken much interest in this chap since he told everyone in the country to deposit their money in Northern Rock high interest accounts never once mentioning the then compensation limit of £2,000 100%, £33,000 90%.

  12. Paul Lewis on, telly off; can’t be doing with the bloke.

  13. Incompetent Regulators 6th November 2014 at 2:43 pm

    Paul Lewis is living in the BBC bubble of bullshit. He works for the BBC which is another tax to the public. They who spend as they wish and is not properly accountable. Lewis no doubt receives a nice fat salary and final salary pension from an organisation which survives by being parasitic on the public purse. Cross subsidy is happening here too with the poor old pensioners and the not so well off who pay the license fee for HIS BENEFIT. Hypocrite of the highest order with no actual experience in dealing with clients.

  14. Way too many sweeping generalisations IMHO;

    For what it’s worth, I suspect most advisers would jump at the chance of moving to simple hourly rates; the issue is that the vast majority of potential clients don’t want to pay for ‘advice’ in it’s purest sense nor feel that the clock is ticking. Whilst I have many existing clients who do, many new ‘enquirers’ would happily go elsewhere if we only offered an hourly charged fee option.

    Whilst the majority of our clients are happy to pay our fees for the work we do, we still have those new potential clients who feel that we should work for free (and be greateful at that!).

  15. Advice dressed up as commission? Tell me something new! It does strike me as odd that we take more money from richer clients for doing less than we do for poorer clients. But then I look at what I pay in tax. The richer I become the more I pay out to subsidise those who do not earn as much. That too is a percentage fee or commission. What is worse, I pay a higher percentage for having the nerve to work harder and earn more so that I can subsidise those who do not or cannot…
    My point is that we should move away from this idea of commission and the negative connotations and emphasise communicating cost to clients in a clear, fair and not misleading way.

  16. Well. we offer clients hourly rates / percentage charge / fixed fee. Guess which one clients generally avoid like the plague? Most like to know at the outset, exactly what the bill will be….

    I guess if we could think of any other variaties that might be good / popular, we’d offer those as well.

  17. @Harry Katz well said, agree with you 100%

  18. Mr Lewis is in the fortunate position that over a considerable amount of time he has garnered considerable knowledge regarding financial products and the various services (good & probably mainly bad) provided by ALL of the financial industry.

    Does this make him an expert ? – who knows.

    Like all of us, he has opinions – but where he gives his opinion in the public domain – he should make sure his “opinion” is backed up with fact. He has decided to go back to the old nutshell – the evil commission bias commentary !! Where are the facts that say commission causes bias – If commission was so evil why wasn’t it banned years ago?

    Harry Katz says ” all commissions should have been banned” – WHY ? – please explain why ?!!

    I am in the process of looking to change my car – should all dealers declare all of their gross profit and commissions ? If one dealer wants to charge me too much and earn too much commission, I have a choice not to buy and go elsewhere – in financial services should not all customers have the choice how they pay ?

  19. I agree with what Paul Lewis says and clients get it, however, lots of clients get it until you tell them how much it will cost for the advice to run a profitable business (a reasonable profit not outlandish).

    I would ask Paul Lewis focuses on telling clients that they need to pay for the advice and for them to realise the value a financial planner adds to their circumstances.

    He also needs to have the same discussions with fund managers as well. Why should they earn double for doing the same amount of work??

  20. @ Antonio

    I would gladly explain why – but it should be apparent. The commission disclosure on (say) an equity release appears on page 17 of a 19 page disclosure document. It is compulsory and give up does not enhance the product terms – all you can do is rebate which is not that satisfactory. Moreover some providers pass the mortgage down the line and pay a third party a hefty commission which is not always that easy to spot. Does that help?

    As far as my car is concerned I pay a set agreed price after bargaining hard – it is by no means the same thing as buying a financial product which is designed to enhance my wealth and which more often than not is not open to price negotiation.

    Do you tell your clients up front that they could actually pay less if you took less commission?

  21. Sorry, but it is wrong of Harry Katz to state that all commission should be banned. I provide a genuinely free service to mortgage clients as the lenders pay me to market their products and to administer the mortgage application. The customer does not pay extra.

    Furthermore, your clients would be better off if you did not charge fees for your advice and services, Harry, but that does not make you a bad person. It is just a different way of being paid. If removal of commission had led to true factory gate pricing as was mooted by the FSA as was, then you might be making a more valid point, but it just hasn’t happened and, in many cases, the customer is paying out more overall than in the days of commissions.

    Much of RDR was smoke and mirrors, so I am very glad that the “commission Ban” has not been extended to protection and mortgages, as I believe that everyone would have been the loser, including providers themselves.

  22. @Stuart Duncan

    Heaven help me. I can prove mathematically that you are entirely wrong and that fees (or at least my fees) are considerably cheaper than commission.

    I just cannot believe that you truly think that your advice is free. That statement is a gift to those that continually (and in this case justifiably) criticise us.

    The lender pays you – that says it all. Independence just doesn’t exist in your case and this is exactly the kind of arrangement the RDR was there to stop. If you don’t understand this it is a wonder you are still an adviser.

  23. I was explaining to a client today how consumers have lost out in the commission ban. Some firms offered enhanced commission terms for advisers for a while (not drawn from investment) and offered clients extra allocations. Net result? Free advice. All gone. Clients lose. Same with structured products. Return of initial capital now means return less adviser fee whereas before it didn’t. Clients lose. If customers knew this they would want commission back.

  24. @ Harry Katz. Can you explain this Harry, around December 2012, I ordered 2 quotes from the Pru for an investment bond, one for pre RDR adviser payment, i.e. commission and one with post RDR fees. In both cases the fee income to the firm was identical, yet the pre RDR quote displayed a lesser reduction in yield, therefore, arranging the investment on a post RDR basis, the client loses out.

  25. Neil F Liversidge 6th November 2014 at 6:31 pm

    Sent by Email to Paul Lewis

    Dear Paul

    Your comments made at the PFS conference are nothing more than the latest edition of the ill-informed slurs you issue against the adviser community from time to time. In January 2012 I appeared on your programme to challenge an earlier example of the same. Many of your listeners judged me the victor of that encounter. How do I know? Because a number of them called in the days following to ask for appointments, citing my besting of you as the reason for their interest. Directly as a result we increased our assets under management by some £3m. All the clients who joined us are making money, moreover they are making a lot more money than the effective interest rate on premium bonds which, incidentally, I know to be 1.35% if you win an average amount or a lot more if you are lucky and zero if you aren’t.

    So Paul I challenge you to a return match on your programme live. We charge in percentages and I will happily defend the practice. You and me Paul, live on air – my livelihood versus your reputation. If you are up for it please let me know when. If you aren’t then you should withdraw your remarks and apologise to the adviser community.

    With kind regards,
    Yours sincerely

    Neil F Liversidge, Dip PFS
    Managing Director
    West Riding Personal Financial Solutions Ltd

  26. Paul Lewis is a FREELANCE journalist looking to generate enough ‘media noise’ around himself to maintain his profile and attract enough work to keep paying his bills.

    As for his comment: “Some of it will be less profitable and some of it will be more profitable, but you are an adviser, you should do everything.” Does he think advisers run businesses or charities?

  27. My issue with Paul’s comments are more akin with Nick Branford’s. I am ambivalent as to the pro or anti commission argument, I moved on to a fee basis pre RDR and my fees are unchanged from about 2007. Unlike Harry & Nick, I have a bad habit of helping people at MY cost when I should be more focused on profit, BUT Paul Lewis is wrong to encourage as to help unprofitable people though our own businesses due to the RISK, we should volunteer for CAB as the risk remains with the CAB then and not our PI etc.

  28. @Harry Katz
    Sorry, but you clearly fail to understand how mortgage commission is structured then and that mortgages are something that clients have to achieve, not buy. Yes, I could charge for my time and include the likes of HSBC in my advice, but I cannot do anything other than say to clients that this could be a suitable product so off you go and good luck with battling through their underwriting. That would be an uncertain route for the client and would be supplying third-rate advice at best

    I therefore deal with lenders who allow us access to their products and enable us to provide advice, administrative support and certainty in what is usually a time-sensitive and stressful transaction linked to others of a similar nature. Pointing someone in the right direction is not advice in that environment.

    The massive problem with mortgage dual pricing was that lenders were literally cutting brokers out of the equation by charging a premium on introduced mortgages. Now that lenders have a thirst for business and are largely unwilling to train staff to provide proper advice, the pendulum is swinging back to the point where I can obtain better-value products than can be obtained direct. In these cases, clients are achieving LOWER costs with the products that I can access and in other cases paying nothing extra but getting plenty from me in terms of support.

    Now, I know that you are unlikely to admit that you can be wrong, simply ignoring the points made and coming up with a different angle, but mortgage commission is a very good thing in the current environment and I am greatly pleased that I can now do the job of mortgage BROKER once again.

    RDR was a good idea in principle, but the lash-up in its execution was to ban the commission option in many areas. Whilst that may have benefitted your particular business model, it was a removal of choice for all parties and reflected lazy regulation, not consumer protection.

  29. …and, using a motoring analogy, when I call it lazy regulation, it equates to improving road safety by banning cars from using roads i.e. effective but ludicrous, except that RDR wasn’t even effective.

  30. @ Ray Leigh

    There is an easy answer to this – don’t deal with the Pru. Very second rate. Don’t tell me you are still flogging with profits.

  31. This is very simple, let’s all just close our doors and stop advising. better still let the consumer and clients make their own minds up,

    It does not matter one jot what we do, we will still be wrong. Twenty years all everyone has done is moaned, complain and have opinions on how we should charge work and advice. So I would say to all you would be know it all’s, take the exams and open your own business, let me know how you get on.

    Fact, what ever we do you the critical will not be happy, it will be to expensive, it will not be enough, it will be to complicated there will always be something. Why, as we are seen as a great way to get you noticed.

  32. Elements of his statements are accurate.

    “Although commission is banned, the industry is so addicted to it, it sneaks in in the back door like a smoker who sneaks out for an e-cigarette.” If you take recent announcements about Sesame’s “pay to play” revelations into account, you could argue this to be the case, but it is only in some quarters. Also, based on some of the advice that I’ve seen from “partners” of a certain company, the “spirit of commission” does still live on.

    There may also be some truth (again in some quarters) in the statement “Advisers will need to know how it impacts means-tested benefits, and give advice on inheritance tax and care home fees. Many advisers will have to broaden their knowledge.”

    However, the rest of the quotes from Mr Lewis in this article are so far from the truth that they are, quite simply, obtuse. Sensible people know that you can’t make wild generalisations that tarnish all of an “industry” with one brush.

  33. What no one has managed to explain yet is why is fee based advice better than commission based advice (when commissions paid are transparent and increased allocations are offered to customers). No one has explained why getting rid of client choice is better than letting customers decide how to pay for advice.

  34. I agree with your comment Ken (8th Nov, 8.23 am). And to answer Harry, yes I would still recommend a With Profits Bond if the situation was right, but now without extra allocation.

  35. More drivel from my favourite journalist on Saturday morning TV. He is factually wrong most weeks on that programme. Could he not stick to presenting Desert Island DIscs, or preferably emigrate to one ?
    I could then update him on a weekly basis until his CPD is of a decent standard.

  36. There’s a journalist in today’s Sunday Times saying the answer to low interest rates is for depositers to invest in high yielding shares!!! If anyone from the FCA dips into the real world and reads our comments is there any chance that these financial adviser journalists can be regulated and held responsible for the crap they are coming out with?

  37. Once again someone in the media talks about a lack of trust etc. when all research shows that the independent advice sector is trusted. I’d love to see his research that backs up his assertion that getting rid of ‘commission’ would in some way engender trust; lets face it people only pay ‘fees’ to accountants and solicitors because they have to. Why not get rid of ‘commission/mark up’ on all products out there?

    Also to use a plumber as an example is a bit funny as lots of ‘tradesmen’ charge for labour and then also make a bit on the replacement bits as well!

    As usual the waters are muddied by all ‘advice’ being lumped together – a bit like saying all journalists are dodgy due to phone hacking etc.

    If this was America we would be suing Mr Lewis via some sort of class action for defamation of character.

  38. Financial journalists are very damaging to the way that the public perceives and engages with financial services. Yes they are needed to expose dodgy practices and protect the public from miss -selling but, as Ken mentioned, how can they get away with recommending high yield shares instead of cash savings?

    I wrote to the BBC regarding an article on their website that claimed that commission was now completely banned. When i pointed out that commission was available on insurance products the BBC responded with “Having spoken to the FCA, I understand that advisers can still receive commission on insurance only products, although the FCA said very few IFAs would now sell such products.”

    It is particularly galling that we are judged so heavily on what we say to clients while journalists are able to state opinion as fact.

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