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The financial advisers who earn too much

Justin Modray says the RDR will make little difference in the way most advisers are paid.

There’s no doubt that financial services is a well paid industry in the scheme of things. So it’s hardly surprising that most financial advisers earn well above the national average wage of around £25,500 a year.

But, like any profession, there are extremes. I’ve met financial advisers struggling to make ends meet and others earning over half a million pounds a year (and these are simply advisers, not business owners).
If you believe in free markets then you’d argue that advisers earning comfortable six figure incomes only do so because the quality of their advice is such that customers are happy to pay high fees in return.

But experience suggests that while the market’s free, it’s certainly not perfect. Too many customers are naive and/or ignorant when it comes to taking financial advice, providing an ample feeding ground for the slick commission-based salesmen who are probably amongst the highest earners in the world of financial advice.

The annual results issued last week by St. James’s Place really focussed my mind on this topic. The results, for the year ended 31 December 2009, suggest SJP paid its 1,464 partners (a.k.a. advisers) remuneration of £190 million and also spent a further £41.9 million on other new business related costs, including ‘partner incentivisation’.

This means the average partner would have taken home around £129,800 (before tax) during 2009 and possibly £158,400 if all those £41.9 million of new business costs were paid to partners. And remember, these are averages, so some partners will have earned significantly more.

I’ve simply used SJP’s figures because they were to hand and I suspect fairly representative of other sales focussed adviser firms.

Now, my issue is this. A fee-based adviser working on a fair hourly rate would struggle to earn this kind of money. Let’s assume they charge £200 an hour and bill 800 hours a year, they’ll gross £160,000 of revenue. The firm they work for might take about half of this to cover overheads (including punitive FSA and FSCS levies) and hopefully make a profit. This leaves the adviser taking home about £80,000 (before tax) – a healthy income but seemingly rather less than a SJP partner.

So by my basic reckoning a financial adviser needs to work on either a commission basis or charge fees as a percentage of client assets (which is tantamount to commission) if they’re to earn a comfortable six figure income (or take lessons from accountants and solicitors on how to charge clients for more hours than actually worked!).

But this is exactly the type of remuneration structure that works so badly for the wealthy clients on whom many commission/percentage fee-based advisers prey. If I invest £100,000 with a 3% initial fee or commission, the adviser receives £3,000. If I invest £1 million it jumps to £30,000, but is me taking financial advice really worth 10 times more? Or has the adviser worked 10 times longer? I doubt it.

All I can deduce is that wealthy individuals are generally no-more clued up on taking financial advice than everyone else. And while those investing modest sums might, sometimes, benefit from commission based advice over an hourly fee, the rich invariably don’t.

I fear that the RDR won’t make much difference – an adviser who’s already successfully selling commission-based products or charging a percentage-based fee shouldn’t have too much trouble talking their customers into agreeing a healthy slug of percentage-based remuneration.

Justin Moday is the founder of Candid Money Limited
www.candidmoney.com <http://www.candidmoney.com>

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Comments

There are 61 comments at the moment, we would love to hear your opinion too.

  1. It is of course nothing to do with how hard you work, i sense a distinct undertone of socialism in this article!!

  2. Perfectly summarised.

  3. Can we have some balanced views without the emotive language please? I am mainly remunerated on a commission basis but anybody who knows me would, perhaps sadly, laugh at the suggestion that I am ‘slick’. I have met some slick advisers who ar commission based and some who are fee based and the use of such words as slick in an article like this are so basic and obvious.

    The other one was ‘prey’. Do me a favour. You should have seen what my solicitor charged me for doing a pathetic job on family member’s estate two years ago.

  4. Of course if you want to earn big money in Financial Services you should work for the FSA.
    You also have the advantage of the more incompetent you are, the more you get paid.

  5. The guesstimate of a firm taking just 50% of the fee based advisers income is naive to say the least. There are fixed and variable costs in any business and my experience is that a great deal more than 50% of the ‘income’ that my clients generate is soaked up by the business before I see a bonus! It appears we can’t win because if we become purely fee based like solicitors and accountants then we’ll be guilty of over charging in other ways. It’s very easy to be destructive Justin but what’s our business model to be then? I have to say this is a really poor bit of journalism Justin and as for that picture with the cheesy grin………..

  6. It’s not socialism – it’s a lack of integrity to take 10 times the commission for what is, very probably, the same hours worked just because the client is richer – or maybe you allude to the “redistribution of wealth”…

    Let’s face it though, the whole Financial Services Industry is remunerated by skimming off the top of clients’ assets…

    IFAs would undoubtedly earn less on a fee based remuneration system which was based on hours worked…

    Percentages of assets dressed up as fees are not fees, they’re commission…

    Unless you charge fees you are not professional.

  7. As long as commission is paid there will be the underlying suspicion from the public that this could make the “advice” they are getting biased. Perhaps in the UK we should be prouder at being called Salesmen or Saleswomen rather than trying to hide behind titles that make us sound like and be on a par with lawyers and accountants. Accept it – when it comes down to it we are selling financial products to make a living. Most “Advisers” would starve if they relied on clients feeling they were worth paying a fee to.

  8. Alan Parkinson 2nd March 2010 at 9:55 am

    When a Solicitor conveys a property, the fee livied reflects the value of the property being transacted inorder to take account of the increased potentential liability.

    When an Accountant carries out an audit within a companies accounts, the fee levied reflects the turnover of the firm being audited in order to take account of the increased potential liability.

    Why therefore should a Financial Adviser accept the same fee for advice relating to a £100,000 investment as for a £1m investment.

    It is true that the work involved is likely not 10 times as much, however the liabilty and by definition the potential for redress certainly is and in such litigious times, fees must reflect this increased risk, our PI insurance certainly will.

  9. TO ANONYMOUS 2 Mar 9.41

    How dare you question the integrity of other advisers who may work on commission and say they are not professional You pompous prat.

    Professionalism has got nothing to do with how you are remunerated!!

    If you are going to make such remarks you should at least have the **** to put your name to it.

    CHRIS NEIL please feel free to contact me you idiot

  10. I hardly think looking at SJP would be representative of the entire industry. Everyone I know who works at SJP went there because their income structure belongs in the 1990s.

    Also it is spurious to compare a professional income to the average national salary. Outrage, the average qualified and experienced barrister earns more than…

  11. paolo standerwick 2nd March 2010 at 9:59 am

    St James Place is certainly not representative of IFAs model so lets not get confused.

    St James Place has the perfect model and financial structure to survive the RDR cr*p. RDR will push IFAs in this direction if it not scrapped.

  12. I was thinking the other day on a four hour drive back from a clients after a four and a half hour meeting (well I did get lunch as well) having taken three and three quarter hours to get there – After nearly five hours paperwork and research adding my PA’s two hours collating and organising. Plus One and a half hours processing applications anticipated contract note and policy checking, chasing Investment Houses and Insurers maybe two hours.

    Well yes I was thinking that maybe I am overpaid for what I do, maybe I should give some if not most of it back (Earned £9k that day over eight Investments and recomended 4 further accounts that I earned nothing on). I was thinking that I hope I don’t fall asleep at the wheel and I was hoping that I got back safely to see my son asleep in his bed.

    I did – then I put the files in my office, had a quick read of my e-mails and there was one from the client I had seen that day wishing me a safe journey and asking me to call them in the morning of the following day to let them know I had got back safely.

    I did – but then I guess that just goes to show how slick I am.

    Clients, I am glad to say, think more of us than the very average (and probably overpaid) cynical Hack.

  13. Dont blame it all on the IFA/ Salesman/Saleswoman whatever you want to call it. The providers pay the commission! My feeling is it is more about the integrity of the PERSON giving the advice. If you give the correct advice based on the needs of the client it evens out over time!

  14. If my firm advises on £10,000 and the advice is subsequently found to be flawed in some way. I write a cheque for £10,000 out of the business – painful, but not the end of the world. If we advise on a million and the advice is subsequently found to be flawed my business goes bust my family doesn’t eat & my other clients don’t get served. OK so there is PI, but given recent calls on FSCS that doesn’t really seem to make that much difference when the claim is big.

    Advisers must price commensurate with the contingent risk of that advice and while the same flat percentage on a million might be too high, the fee should certainly be significantly higher (than the fee for advising on £100k) to cover the risk of advising.

    As to the article itself – most millionaires got that way by being able to work out when they are being overcharged and I have yet to meet a millionaire who would be happy with the same service offered to someone with a lot less.

  15. “Unless you charge fees you are not professional.”
    Really. Have you ever heard of a former Financial Adviser by the name of Roger Levitt or a former solicitor by the name of Jim Beresford? They both worked on fees.
    How you charge for your services does not determine your professionalism.

  16. All of this is fine but, and how often does this need to be said, where does £200 per hour come from or where does 800 hours come from. That is less than 20 hours a week 46 weeks a year. A business can be seriously profitable charging half that for work done BUT only if appropriate systems and processes are put in place …
    Create a proposition that clients want, work out real expenses and desired profit AND (this is the critical bit) leverage the services offered using the services of salaried less qualified and junior staff, all of whom should be recharging a lot closer to the average 35 hours a week and costing barely 10% of that mystical £200 per hour. That’s where the client facing business owner will make profit. And if you don’t believe me, go and ask the accountancy or law practices who do exactly the same.

  17. SJP is probably not a fair comparison to the IFA sector as a whole.
    I also do not understand why one cannot be professional if they don’t charge fees?
    Surely a good business model is being open and honest with your clients and allowing them the right to choose how you are remunerated.
    I have been in the industry for 26 years, I have clients who pay fees, some by way of retainers and others who are more than happy for me to receive a commission. All is disclosed in advance and where larger investments are concerned the commission amount is reduced thereby enhancing the clients investment.
    I run an office with staff so overheads need to be considered. I sometimes work long hours and would suggest like most successful IFA’s they give up alot, it’s not 9 till 5 and deserve alot of what they earn. Surveys indicate the majority of the public are happy with their IFA’s and the service they provide.
    However Justin you could concentrate your efforts on other sectors of the Financial Services industry and ask why despite the problems we find ourselves in that certain institutions continue to receive bonuses based upon bad lending and staff of another for inept regulation.

  18. I think RDR (or RDIP as it should now be known) will make a difference. My firm has already moved to abolish any initial charge for investments moving under our management but taking a 1%pa fee (I think that is a fair description) for ongoing service. This is on the basis that when charges become more explicit clients will become discerning. And the Daily Mail will make sure they do.

    Consultants working her are paid a salary but also receive 0.1% of the funds under their control.

    Perhaps this is a glimpse at the world post 2012?

  19. Given that you could be fined £100,000 for making an error, £30,000 seems quite reasonable.

  20. I am one of the poorer advisers and happy doing what I do but if someone can earn £160K pa and the client is happy with the service and he is not conning anybody, then I say good luck to him / her. Why is it that financial services is continually attacked from all angles and all parts of the population. Some solicitors are earning £50K pa and some Barristers are earning £500 per hour, is that reasonable ? This is supposed to be a free economy and what somebody earns is their own business. if we continue the way we are then we will end up with a set amount of money that all advisers charge. Where would the bar be set ? It would have to be high and the poorer people could not afford to pay so advise will end up being only for the rich and even more advisers will leave the industry. Is it fair if an estate agent charges 3% to sell a £300,000 house ? have they actually put in £9000 worth of hours ? Probably not but it is our decision if we value that service and think it is worth it. we know the terms before we start so it is our choice, the same when we buy a new tele or a car. we pay our money and receive something in exchange. If we do not like the car and take it back everyone accepts that there will be a huge financial loss, but if this is a financial product then different economic rules apply. I, like most financial advisers, do a good job for their clients and very often do things and give advise for free so what I earn should not be questioned. The same goes for being a plumber or any other job. This industry is killing itself in rules. If everything in life could be sorted with a set of rules then there would be no crime and life would be bliss. Unfortunately life is not perfect but in the main its not bad. Please stop trying to reinvent the wheel.

  21. well said Chris Neil.

    We are a tiny IFA practice and have for the last 12 or so years explained fee vs. commission options to our clients and THEY have made the choice.

    We have always lead the client in the most appropriate direction and have either suggested fees or reduced commission as being the most suitable when dealing with bigger assets.

    I am appropriately RDR qualified and feel that being honest about how we are paid is perhaps more important than what constitutes ‘professional’. clients do not pay accountants and solicitors because they want to but becuase there is no other option.

  22. Chris Neill – Very well said. I couldnt agree more with you. Apart from anything else all clients no matter how clever or stupid, very wealthy or have modest incomes, they all understand that the advice given has to be paid for and in our country this is done predominently by way of commission. The largest piece of commission I earned on one case was £17350 and the only comment the client made was “Marty as long as that comes out of the pot I have no problem.”. We are highly paid sales people and the sooner these morons who sit in glass towers in canary wharf realise that the better. When will they get it into their heads that consumers here prefer to pay for advice (or product sale) by way of commission. Its the way it has always been and will continue post RDR, albeit under a different name. Since the 80’s the reuglators have been putting their noses into our industry trying to “clean it up” and all they have done is make it more expensive for everybody including clients and for what benefit? Virtually none except their own – big salaries, large expenses budgets, final salary pensions etc. Butt out and let us get on with what we are good at – dealing with clients who value what we do and how we do it and dont mind us getting paid to do it!!!!!!!!!Everyone will be better off.

  23. I spent 15 years trying to convert my practice solely to fees. It nearly put me out of business. The reality check here is that the general public simply don’t want to pay for anything. To imply that commission is “unprofessional” is a stereotype happily propogated by the Government, FSA and Journalists with vested interests. Since disclosure came into being all IFA’s have had their income open to all and yet there are those who will not be happy until we are all earning the National Average wage. Well, I for one may not be around to see RDR. I’ve been offered a job, NOT in the Financial services, where the basic alone is more than I could have wished for with my “commission hungry” ways. Commission or bonus, call it what you will, is something to be aspired to in virtually every other walk of life. When I came into this business I wanted to make a mark on peoples lives, I wanted everyone to get the best advice I could possibly give (and my KPI’s back this up). What a shame that advice has now taken a back seat to how we get paid.

  24. On your point that: “A fee-based adviser working on a fair hourly rate would struggle to earn this kind of money”.

    You do not account for the fact that advisors head up teams of admin assistants and so it is possible for multiple people to work on any given client simultaneously — hence if you add up time spent by 2-3 people per client you will get a much higher number of hours. Also, your estimate of £200 strikes me as too low for a good quality advisor.

    Finally, where such firms have low overheads and are privately owned it is often the case that a large portion of profits is distributed in bonuses. I assure you that advisers working on an hourly rate fee basis can earn very good money while treating the clients fairly and honourably.

  25. What a load of rubbish. Wealthier clients have a much more difficult and extensive situation. They require long solutions to complicated problem. The advice given is much more likely to be difficult and risky from the advisor point of view. Getting these HNW clients is incredibly difficult and takes years of working on a fair basis to get trust and ongoing referrals (the bright techy advisors fail because the public are hamstrung in their understanding by FSA guidelines and they have no sales adility) Will all those failed middle income whingers please SHUTUP and go and draw a salary and benefits. Us proprietorial advisors work hard, study hard and network hard to get into this position. If you want to see rip off, look at what the banks Wealth Management divisions make in fees and commission and go to task on them and the derisory impersonal service. As for you Justin, I expect nothing more from a journalist. Journalism is fast becoming “if you can’t do it, write about it…badly.” Rhetoric, catchphrase bimble that picks the worst, twists it and emphasises irrelevencies that only damage public confidence. Your smarmy smile doesn’t sell the story, and you average grammatically incorrect prose shows a lack of reasoning, education, wit or research.

  26. Amazing I’m hearing about financial advisers leavig the industry and taking on 2nd jobs to keep their business going. My business lost 40%+ of it’s income over the last 18months perhaps I’m not on the same planet as Justin.

  27. When a Solicitor conveys a property, the fee livied reflects the value of the property being transacted inorder to take account of the increased potentential liability.

    When an Accountant carries out an audit within a companies accounts, the fee levied reflects the turnover of the firm being audited in order to take account of the increased potential liability.

    Why therefore should a Financial Adviser accept the same fee for advice relating to a £100,000 investment as for a £1m investment.

    It is true that the work involved is likely not 10 times as much, however the liabilty and by definition the potential for redress certainly is and in such litigious times, fees must reflect this increased risk, our PI insurance certainly will.

  28. I have no problem with professionals earning 100K per year. A doctor earns this, so does a solicitor and a specialist teacher can earn 85K.
    The article smacks of jelousy – self employed hacking of course is a job you do when you have finished your milk round for the day.

  29. Norfolk Enchance 2nd March 2010 at 11:17 am

    I certainly know of instances where solicitors and accountants have inflated their fees dramatically when they know they can get away with it. Why shouldn’t fee hungry advisers do the same?

  30. Justin, you should know better than that. Maybe your next article should consider a fee based adviser like towry law and compare them to sjp. You know as well as I do that they’ll have salaries and bonuses and are remunerated by funds under management too.

    I was with a solicitor last week who charged 2% for probate. Irrespective of the estate size of £3m. Accountants have been known to charge initial percentages too, for their clever tax avoidence schemes, and that’s payable even If the revenue closes it down. You’ll remember what I’m talking about from your CdV days.

    I could easily argue that it doesn’t matter whether it’s fee’s, commission, hourly rates or trail fees as long as the amount received is known to the client, that they understand, and that the sum isn’t excessive. It’s the banks my old friend, who still take excessive initial, upfront commission, with no promise of ongoing service, because their adviser will have left before the review date.

    As far as investigative journalism goes, I look forward to reading your next artilce about the remuneration structure within a large fee based advisor, followed by the earnings of Partners at the larger accountancy and law firms. I think you’ll find their earnings make IFAs look like paupers.
    Best wishes

  31. You could argue that the investor who puts £1million into a fund or an investor who invests £1000 pays the same fees (annual management charges).

    The only way to be fair about the whole thing is either to charge an hourly rate or a fixed rate fee for the work undertaken.

    However, if that is the case, everytime a case file is picked up, reviewed, client telephoned etc etc, then it needs to be put on the bill. Let us see how clients then like being charged for that simple telephone call that takes five minutes to answer.

    The long and short of it is fairness should prevail and sometimes ridiculous amounts are being taken by way of commission or fees by all in the industry.

  32. Bearing in mind Justin Modray’s background, and the fact that he is now paddling a slightly different canoe, he nevertheless makes some valid points.

    Asset value based fees are commission by another name, that’s a fact. That’s not to say it’s wrong, as long as the customer knows what they’re getting, what they’re paying for it, and that they get it..

    I’d be interested though in knowing how to justify a fee of 1% pa on portfolios up to £1m. Even at £250 an hour, that 40 hours work!

    The fact also remains that, wherever and however the advice industry develops in the future, it has not been, is not yet, and maybe never will be, a profession, despite all the bullshit put about by some.

    My guess is that 99% of us have a background in Life Companies or Banks, where we were clearly employed as salesmen/women, and that is principally what we remain. As anonymous said, that’s nohing to be ashamed of or coy about.

    I do however get a bit miffed at the smoke and mirrors surrounding the SJP proposition. They aren’t ‘Partners’, they’re Salesmen, employed or self employed I neither know nor care, but the title is designed to impress and fool the client, as is the way in which their products are structured. Remember though, the evolution of SJP and it’s management, from Abbey Life, to Hampbro Life, to Allied Dunbar, and then SJP. No surprises there then really.

    As ever, let the buyer beware, but for heaven’s sake, don’t rely on the FSA to protect you, but that’s another story

  33. You must be joking 2nd March 2010 at 11:51 am

    Ooh, nothing like a journalist to get people’s backs up!

    I long for the day when journalism, particularly financial journalism is regulated as of course the Mail, Times and even the Sun can mislead more people in a weekend than any “unscrupulous IFA” will do in lifetime!

    Some interesting comments here – but all I’m interested in is where I can get a job where I only have to work 800 hours a year???

    Typically I work somewhere between 60 and 70 hours a week, usually for 50 weeks a year, so thats about 3,000 hours a year.

    Yes, I have a decent income, which after tax planning, employing spouse etc is well into three figures, but as an hourly rate works out at about £50.

    Slightly less than the garage charge their mechanics out at when servicing my car…

  34. I think some of the comments have missed the main point I tried to convey – commission isn’t always bad, but towards the top end of the market I fail to see how it can offer a better deal to clients than a fair hourly fee?

    I accept the fee-based example I used was simple, but for the purposes of the article I think it’s fair.

    I also accept that not all advisers are at SJP levels of remuneration, but again, my argument is aimed towards the top end of the market.

    As for the likes of TL that charge percentage fees for advice, this is included in the article – I state that in my view it’s little different from commission.

    The point re: potential liabilities growing with investment size is a valid one. But if you’re confident in your advice then the risks should be minimal.

    Finally, I’m not a hack (I’d be better at writing if I was!). I’m a former IFA who decided to build and run a website (out of my own pocket) to help open consumers eyes to the perils, pitfalls and opportunities when looking after their money.

  35. Justin, a few thoughts…

    who defines what a ‘fair hourly rate’ is…?

    and whilst it is reasonable to assess the rate of charge based on the input hours, it is also surely fair to base a rate on the value received by the client. Or indeed to base it around the liability costs as well as the time, direct and indirect input costs of a business.

    In fact if RDR achieves anything it will be that Financial Service businesses review their business model and offer it transparently to their clients, who will then be able to decide whether the proposition is attractive and reasonable TO THEM…

    It is relatively easy to create a commentary on the changes that might arise from RDR (or any other legislative or situational change), but to suggest that the RDR will not change either the WAY advisers are paid, or the AMOUNT they are paid is craven headline speak.

    It appears that your major objection is to percentage based remuneration as a business model, but there are plenty of people who similarly object to a time based fee set at £200 per hour (and does your £200ph cover admin assistance time or should that be charged separately?).

    I would love to see your comprehensive survey that allows you to conclude that ‘the rich invariably don’t’ benefit from any particular business model, of course that depends on how you define benefit…

    Sorry Justin, but it’s muddled thinking with confused conclusions that actually doesn’t benefit anyone. Not the profession,
    not even you, nor – in particular – clients at large

  36. Justin I noticed that you “worked” for Chased De Vere, sorry Chase and then Best Invest. I have a number of clients unfortunate to deal with both and in the case of Chase the upfront commission they were taking on investments was scandalous; I suppose then you were discounting that commission were you?

    What are you know poacher turned gamekeeper ?

    The point re: potential liabilities growing with investment size is a valid one. But if you’re confident in your advice then the risks should be minimal.

    You are obviously completely out of touch with the workings of the FSA & FOS; advice is judged retrospectively by these people with ever moving goalposts so when you gave the advice it could have been 100%. It is when that advice is challenged usually as a result of biased and ill informed articles such as yours that problems arise.

    By the way I notice you are an EX IFA why is that? is it because you couldn’t cut it in a world where you don’t get a cosy salary etc, (paid for out of charges levied on the clients).

    You should keep your half baked ill informed opinions to yourself as you are not authorised to give advice as an EX IFA

    And I have the balls to post with my name NOT ananymously.

    Chris Neil

  37. Justin, the last paragraph of your reply speaks volumes

  38. Same old story, a failed IFA hits out at his hard working proffessional ex-colleagues who have earnt more than him. Another case of green with envy. The bottom line is that there is truly nothing wrong with the current commission system and the main winner with RDR will be the banks who have already been bailed out but us all more than once and turned my share holding into a joke. Talk about “rich” how about we cap all bank employees wags at £50k or ask them to take a 300% pay cut at the end of 2012. The consumer will lose as they won’t pay and take advice and the UK may just become another second rate financial hovel.

  39. Julian Stevens 2nd March 2010 at 2:39 pm

    I normally don’t have time to read pages and pages of responses to an article like this, but this time I did. I was very surprised to see not a single mention of CAR (unless I missed it).

    Wouldn’t CAR (largely) solve all this, particularly if it’s CAR before any application forms are presented to the client?

    I’m no fan of the FSA or the RDR, but on the issue of CAR, I have to say I think the FSA is right.

  40. Richard Taylor 2nd March 2010 at 2:56 pm

    Fees as a percentage of assets invested are not tantamount to commission. Fees are transparent and agreed, commission is opaque and often hidden in some way.

    Whilst I probably wouldn’t charge 3% to someone with £100k and 3% to someone with £1m at least this reflects the difference in risk. If the client and the FOS wrongly agreed that I had acted dishonestly and/or incompetently and made me make reparations then I am sure those reparations would be ten times larger for the client with £1m than for the client with £100k.

  41. 1st poster – “Distinct Undertones of Socialism”. Absolutely, a socialist slant to say the least. I support socialism; it’s perfect for Socialists, just not right for me!

  42. Anyone with half a brain knows that a lot of financial advisers are overpaid for what they do.

    Financially aware consumers could do it for themselves at a fraction of the cost if they could be bothered to do so.

    In most cases paying a financial adviser to arrange your affairs is money for old rope. They make out that it is so complex and that high levels of knowledge are required but in reality this is not the case. They have to pretend that this is the case to justify the high levels of payment that they receive.

    What most financial advisers are highly skilled at to use the words of Sir Alan Sugar ‘is the art of schmoozing’. The more contacts they can make with wealthy people the more money they stand to earn.

    The secret of SJP is that they target the wealthy so that their average case size is higher than the market average. In addition they target advisers who are already successful and motivate them by offering them higher rates of commission than they can get elsewhere.

  43. Doesnt this also show the madness of the fee and levy calulations? If an IFA advises on £1million yet charges the same as an IFA advising on £100k, their “income” (which is used to calculate the fees/levies I think?) will be the same. Yet the risk of loss/claims etc is clearly 10x higher ….?!?!?!?

  44. This naff hack writes with the bitterness of someone who has something large shoved up his backside – and that expression on his face seems to confirm this

  45. Another way of making money is set up a stupid website such as candid money.
    Very childish

  46. it’s nice to see a totally unbiased and untainted journalist get it so wrong. I may be wrong but I am under the impression that journalists are paid for the number of words they are asked to submit.
    the FSA staff get a bonus for the fines they collect. Shame they werent more awake when they investigated Keydata.
    Our econmoy is built on incentives for sales and productivity and the sooner that fact is recognised the quicker the economy will be to recover.
    Just one small point for our misguided journalist to consider is that clients learn to value advisors not just for the program of investment, but for the years of relationships that are built up and the service each IFA offers over and above the call of duty.
    But I sense Justin will never recognise the value of an advisor whilst he needs to write articles designed to create controversy.
    Any time you want to visit my office Justin pick up the phone and I will show you what 40 years of being an IFA looks like.
    John Joseph

  47. Wealthy individuals more clued-up? Not based on the evidence I’ve seen. If anything, they are the base of the ‘clued-up pyramid’.

    As for the commission v fees debate, how many times are we going to have to go round this particular mulberry bush? Both have their place and it’s neither is inherently evil.

    Sure, commission creates a conflict of interest – because advisers will want to recommend high paying products. The test of the professional adviser though is whether he succumbs to that urge.

    However, before the ‘fees are the only way’ lobby gets on its high horse, lets remember that fees create a different conflict. A fee charging adviser can ‘pad the account’ and over-bill his client just as easily.

    To misquote the US gun lobby ‘Commission doesn’t fleece clients – (some) advisers do’

  48. Not much comment from St James’s Place, guess they are all out there seeing clients. Earning money, and the rest of the industry is on here ranting and ranting.

    Back to work slackers and stop whining all of you.

    Gill Cardy you always make sense, thanks for bringing some sense back to it.

    Richard Smith

  49. I have a lot of sympathy for this argument however it does not allow for risk premium in a fee only world. Solicitors and accountants routinely charge a risk premium you only have to look at conveyancing charges which vary according to value of the property. we have open ended risk ie no long stop therefore our risk premium needs to allow fpr open ended recourse!

  50. I work in the financial services mainly as a Mortgage broker and I know several hundred advisors who earn less than £25,000 per annum.This work involves long hours with a lot of work for no reward however we feel obliged to help our clients who have been with us for a decade or two.

  51. From what I remember Justin was a sensible and successful IFA/discount broker.

    The fact he seems to have taken quite a long time out of the industry to launch what looks like a fairly uncommercial website suggests he’s probably doing it because he wants to, not because he has to.

    I think he’s guilty of over generalising in his article, but on the whole I agree with his sentiment.

  52. Shouldn’t you lot be off earning your £200 per hour as oppossed to taking 5 minutes out of your day to blog on this article… that’s £16.67 you just lost out on!!

    I work with IFA’s who have business models at both ends of the spectrum. From the goodie two-shoes ‘menu of charges’ fee-based businesses to the guys working out of the garden shed who struggle by on ‘6 plus a half’.

    If the FSA really wants to raise the bar and clear out some of the ‘cowboys’ their time would be better spent educating Joe Public on the options for paying for the cost of receiving financial advice as opposed to trying to put too much regulatory framework around the IFA market.

    Most IFA’s are honest people who genuinely care about the well-being of their clients. Ok, they want (and deserve) to be well paid but the key issue is that the cost of advice has to be agreed by the customer – the regulator would have done us all a favour if they’d kept that in view when they put the key edicts of the RDR together.

  53. Huw Frederickson 4th March 2010 at 11:18 am

    Our firms work on TCF raises several interesting points…the most obvious of which is that all firms need a business plan/model that is realistic and workable. A fee only model will work for a few firms, but most will simply dwindle, merge or pack up. It is hard to treat a customer fairly if you are insolvent and cannot trade.

    I agree with the mortar board boys that having a high level of qualifications and offering an unbiased holistic financial planning service should allow you to act as a fee based professional, exactly like a solicitor or accountant. I started my working life in a law firm and I suspect that in due course, every possible piece of work that an IFA may do will become very complex and long winded. Heaven knows that if you want to make this job complicated, it is very easy to do so, and if the clock is gently ticking as the fees rack up, this is exactly what will happen. Just don’t forget that clients seek advice from solictiors and accountants because in the main they have to. It will take some time (several decades) before the general public will initiate contact in any great numbers with financial advisers because it is a prudent and ultimately cost effective thing to do.

    As for the rantings on here about over paid advisers….most provincial professionals at partner level will see at least £150k, in larger cities these figures are much much higher. There are a great many professionals earning over £500k in London, and some top QCs charge £2 – 3,000 an hour. Good luck to them too, I’m sure thay are worth it if you need their services. Presumably if they are not worth it, they have a lot of spare time on their hands.

    Whatever this industry/profession has in store for us in future, I for one as a late 40s well qualified hard working adviser won’t be working for 30 or 40k a year anytime soon. But I respect the wishes of those that do as I can still remember vaguely when this was a free country.

  54. ilORza xsqmdhsnriiv, [url=http://ozsmzgdkwwmg.com/]ozsmzgdkwwmg[/url], [link=http://woiefzpebdun.com/]woiefzpebdun[/link], http://thlgovrhjwre.com/

  55. Quote: “Same old story, a failed IFA hits out at his hard working proffessional ex-colleagues…”

    Call me a pedant but shouldn’t a true ‘professional’ at least be able to spell the word? And an anonymous poster thinks it disgraceful that he barely earns more than a mechanic (without having the financial nous to understand the costs of running a fully equipped garage or realising that mechanic possess considerably more skill than most IFAs).

    Anyone who seriously can’t understand the problem with commission-based advice at last being dealt with by the FSA shouldn’t have a job involving numbers.

  56. I have 2 degrees and am a few points from being Chartered Status – something I could have done years ago had I believed it to make any difference to my competence or integrity. I earn virtually all of my income from commission usually rebating substantial amounts, especially on larger scale investments.

    Someoneelse, charging outrageous fees, qualified to the minimum standard as laid down by the FSA, is PROFESSIONAL whilst I am not.

    It is impossible to generalise on professionalism based solely on the method of remuneration accepted by an adviser. Similarly, I would argue that SJP is hardly a typical example of an IFA business – actually, a very bad example as Justin probably knows.

    Most of us now realise that RDR is all about getting rid of IFAs – a sector that is not without its flaws but is gleaming white compared to the banks. So why are people like Justin shi****g on their own doorstep by castigating commission when, in reality, until fairly recently, they were happy to take commission themselves. What did Justin earn last year ?

    By the way, I don’t know if Justin is an adviser or a journalist. If it’s the latetr then most people know that Financial Journalists are considered to be the lowest-of-the-low in their own ‘profession’. War correspondents at the top, cookery journalists are second from the bottom and financial journalists last. So who cares what they think!!!

  57. As an aside, good salespeople in America are revered because it is widely understood that if a company has the best product in the world it still has to be sold – without good salespeople, the company goes bust and the public are denied the benefits of that product.

    Over here, salespeople are considered to be leeches and cheats without integrity or compassion.

    The problem is that the government (with the FSA as it henchman) doesn’t want the public to get good advice. If I give advice that mitigates a substantial IHT bill, the greedy and dishonest government will have less to line their own pockets. Should I earn commission from helping someone to avoid IHT – damn right I should.

  58. Why is it that all fee based advisers are raking it in ?? Towry law for example its common knowledge that you pay around 2% to get in plus a fee and the ongoing trail commission sorry fee well thats another story doing some analysis fee based is more expensive thats the secret no one wants to tell clients. I had a local practice with Edward Jones we were commssion based just like in the states did we churn NO!! did we buy and sell for no need NO!! what we did was provide honest advice irrespective if a sale occured or not. Fee or commission cheapest is not always best. And you know what clients came back in their hoards by just doing the right thing. Bad news sells there are more straight and honest policemen than bent ones like doctors and solicitors our industry is no different. Murray walker was a racing commentattor how many F1 races did he win ?? NONE financial press is the same i bet the journalist has no financial planning exams. Lets all focus on making the industry a better place and even more well paid we deserve it with out us half of the retirees would be in poverty…good luck with RDR

  59. I am new to the industry (6 months) & currently an associate adviser at a top IFA.

    I’m pretty dissapointed at the “professionalism” of this article- as a new entrant learning my trade (holistic financial Advice) I have spent much of my time attempting to reach a standard at which my prospective clients would be happy to remunerate me for providing independant – non biased -advice.

    Being also a son to an honourable & hard working father in the financial services industry I feel personally offended at this article that so blatently taints the image of financial advisers.

    But then again – everyone is entitled to their own judgements & views. Maybe I should write an article on “Journalists”

  60. SJP are the only firm permitted by the FCA to offer pension and bond products that don’t operate factory gate pricing on product/advice charges. This way, the client doesn’t see a 3-4% reduction in the investments on day 1. Instead, the advice arm loses money each year as the product provider props it up.

    That is the real issue that should be looked at.

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