Watching programmes like Location, Location, Location makes me think of investment properties and in particular the number of IFA firms who own their own property.
Recently, I have had several discussions with IFAs who were selling their firms as a result of their wish to exit before the RDR. In all cases, they owned their own property and to a man were surprised that the purchaser was not interested in purchasing the property.
Now they have to market their buildings and as none are in prime locations selling will be a drawn out affair.
Some of you will see them as taking too much for granted but I tend to reflect on their decision to buy the property in the first instance. Did they do so as an investment or more likely as a convenience that gave them control over rental costs etc? This approach to any investment is not smart and will in all cases result in unfortunate results.
While on the topic of investments, just why is it that some IFAs see switch commissions as acceptable, never mind ethical?
Before I get started, let us consider when it would be acceptable, for example, if a complete re-assessment due to different goals, different time horizons, etc, then I for one would approach my client and explain that I would be charging the same amount as a set-up fee for new money as the time involved etc., was comparable.
To charge on simple switches or in specie transfers onto platforms is not acceptable. I would love to know how many advisers hard disclose these charges when they are often at 1 per cent or more.
This does explain how some firms generate significant profits with little in the way of new money being invested. This may not be churning but it might as well be as the benefit to the client is zero and unless its fully declared those doing this need to be exposed and soon.
The platforms know who is doing this and could control it if told to do so. We need research on how widespread this is but I suspect it is a practice that far too many see as normal.
Disclosure is central to good client outcomes being in line with their expectations. If we don’t get hold of this, I see the same kind of regulations emerging here that exist in Australia where the client relationship is re confirmed every two years.
Perhaps this would be a good development as those firms who have real relationships its no risk but for those who focus on new business to the expense of all else it would spell the end of trail for those firms.
As recent weekends have shown the personal finance press is putting its own spin on the RDR. The idea that IFAs can defer the conversation over these changes until late this year is plain mad.
I remain concerned about firms which have operated commission offset and regard themselves as RDR-ready when in reality they are no more ready than many transactionally focussed firms. Maybe it’s this focus on transactions that leads to the charging on switches i.e. activity for remuneration.
Perhaps the platforms could volunteer the information on those firms taking additional revenue on switches and confirm whether it is widespread or limited to opportunists.
If we want to see advice truly valued we need to charge for what we do and to demonstrate value rather than purely to increase remuneration. If we had a TV show that highlighted the value of the advice perhaps the obvious name for such a programme would be Relationship, Relationship, Relationship.
Robert Reid is managing director of Syndaxi Chartered Financial Planners