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There is more to IFAs than making a profit

BAMFORD.jpg

I like being in business. When you grow up with business owners as parents, it is almost inevitable you will end up doing something similar.

But it was not until about halfway through college that it became apparent the level of academic prowess needed for a traditional degree in something like history was missing from my genetic make-up. The more practical, less academic subject of business it was then.

Whether we realise it or not, we are all businesspeople. From sole trader IFA to chief executive of a multi-million-pound network, business is the name of the IFA game but often gets overlooked when it comes to debates on the retail distribution review and the future of retail financial services.

From some recent discussions, it would be obvious to conclude that large parts of the IFA sector are voluntary or charitable. All this talk about clients no longer being able to afford IFA services after 2012 and the mass market becoming disenfranchised is confusing.

I do not subscribe to the hard-nosed definition of a business. Companies should be profit-able but there can be more to it. I am re-reading Small Giants by Bo Burlingham, which features case studies of businesses that have chosen to be great rather than big. Some common themes of businesses that are successful by measures including but not limited to profitability are community involvement and creating a great place to work.

All this starts with profitability. Without running a profitable business, other noble goals cannot be realised. Behaving like a business, where the target customer has to fit criteria, means saying no to some people.

I love that IFAs want to help every segment of society. That attitude speaks volumes about the typical people who make up our profession, assuming that the attitude exists for truly altruistic reasons.

But it is time to stop confusing this charitable ideology with running a business.

Here is a suggestion for IFAs who are concerned about disenfranchising the mass market as a result of the RDR. Why not focus on running a business that works with clients who value and can afford what you do and then, as business owners, take some of that profit and divert it to charity?

Or maybe some local IFA business owners could create a charitable foundation to provide independent financial advice to those in their communities who cannot afford to pay for it.

The IFA industry cannot continue to berate the regulator for taking away the ability to work with a client segment that probably should never have been a client segment in the first place.

Martin Bamford is managing director of Informed Choice

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Comments

There are 71 comments at the moment, we would love to hear your opinion too.

  1. Where did you find this dick-head?? He’s just missing the point entirely – we don’t want to tell people that used to get good advice that they can’t have it anymore because they can’t afford it – that’s the whole point!!

  2. Financial Adviser dealing with normal people 15th June 2011 at 1:46 pm

    Martin, why should these clients not have financial advice, other than being ripped off by the banks?

    This is what will happen when they are pushed away from financial advisers.

    Of course, we can trust the banks to look after them cant we? Did you watch Panorama Martin?

  3. We are, in effect, a charitable organisation.We give away thousands of pounds each year, in order that poor old hector can drive around in the car of his choice.After all that driving hector and his friends deserve a biscuit or two so we contribute towards the £600,000 worth of biscuits they consume each year.Our altruism knows no bounds as we sometimes forego our own Christmas party so hector and friends can have a big bash with all the trimmings.
    And to top it all just in case anyone does not want to pay for things like financial services we fund a FREE MAS so hector and his friends can sleep soundly in their beds at night, knowing that they are a force for good in the evil world of FS
    I could go on but I think you get the picture.
    We are thinking of rebranding as Philanthropy FS.
    Did I mention we have to listen to boring lectures from others who think we do not have a clue how to run our business?

  4. It is nothing to do with the FSA which clients I choose to deal with and it is not for them to sit in judgement regarding the relationship that I have with my clients.

    More to the point it is incongruous for a regulator tasked with increasing consumer confidence to set out rules that make it impossible for lower earning clients to interact with advisers.

    Go back ten years and you’ll find advisers arranging modest savings plans and pensions which started many on the road to financial planning. This was only made possible because the cost of the advice was provided by product charges. The clients never objected to this, indeed, quite the opposite, when I speak with them they tell me that this option is recognised as convenient – a cash flow tool, in effect.

    What will these disenfranchised consumers do now? Succumb to off-the-page adverts? Deal with direct sales forces, use the banks, maybe?

    Is it progress when an unthinking leviathan tells me and my clients that they know best and despite our preferences the old route is being closed and despite a torrent of righteous blather otherwise the detour leads to a dead end.

  5. Pissed Off IFA 15th June 2011 at 2:00 pm

    Basically Martin thinks that IFAs should only deal with the wealthiest in the community. I think this may happen given that RDR will cull a number of them. However, it will lead to “the man in the pub” being where vast numbers will get financial advice along with the CAB. The sad thing is, we have helped out the CAB (Citizens Advice Service) but do not think this will happen in future.

  6. OH dear !! Martin

    That bang on the head must of really hurt.

    Did Hectors wallet fall out of the window and hit you ?

  7. So much for nurturing a relationship with a poor student who may one be your best client.

  8. Evan is spot on. We grow with our clients and the IFA model is far more sophisticated than Martin thinks. Of course Martin is still a young man and he may not have seen this unfold. Most IFA will see potential in a client that is not yet reflected in their wallet or purse and those clients should be allowed to seek independent advice. This of course is where no win no fee comes into play. A system that lawyers use that looks quite like commission selling! ‘No win no fee’ means that if you do not win your claim, you do not have to pay a fee. Ironic is it not Martin that at a time when we seek to ape professionals they beat us to it an ape a business model that we are shortly to bin!

  9. Yes everyone has to have their business hat on, but when PEPs were first muted it was easy to arrange £25 or £50 per month to go into an Invesco Perpetual PEP and we would be paid 3% of whatever went in over time. Not a lot but enough to cover costs and you had another client for dealing with over the years.

    Those same clients now have thousands as a result of that relationship starting all those years ago and many have come back for further business.

    However, I can’t afford to do such work now due to the volume of paperwork that are needed and the time and effort to sit down with such clients. Furthermore the never ending liability for the advice is ridiculous.

    I have just had a complaint sent in respect of someone who worked with me 20 years ago. It is an Aviva endowment plan sold by one of the most honest trustworthy people I have ever known who solemnly believed that the endowment was a good way to repay a mortgage taking into account tax relief etc etc.

    Burns Anderson are charging me £360 for dealing with the complaint and if it goes to the Ombudsman I will end up paying even more all because of an ambulance chaser sending in the standard letter.

    It is probably time barred but neverthless it is going to cost me.

    That is why you can’t deal with many individuals that deserve independent advice anymore. You also need people that have a good understanding of the advice given and are not going to complain the first time the investment goes down in value or the newspapers or Panorama jump on the bandwagon.

  10. Would you all expect a solicitor to act on behalf of a client who has no money and allow them not to pay? I do not understand what the problem is with this article. As professional Financial Advisers we should advise the clients who have a need for advice, will value that advice and pay for it. In the past it has been these clients that have subsidised the advising of the clients who cannot afford it, where is the fairness in that? I think Martin is right.

  11. Sorry Martin, the FSA have beaten you to your idea, just had our invoice for this year and we are donating about £125 each adviser to the ‘free’ Money Advice Service – although it doesn’t give advice?!?!? Agree totally with Alan except slight difference on, ‘what will these consumers do now?’. Sadly I suspect that the most common answer will be ‘nothing at all’.

  12. Not sure why this sort of stuff still gets into the public domain.
    Nowadays with technology and developments such as on line wraps any of us can put together an attractive profitable proposition which will be interesting to all sections of the population and which will allow anyone to deal with whoever they choose and still make a handsome living.
    People have moved on in their lives and do embrace technology but we have to change as well.
    We dont have to assume pompous ideology around charity or be gracious enough to lower our standards to deal with people whose income may not suit our egos.
    This is just a means of making a living or is it for some actually the first step to Holy Orders ?

  13. Martin is getting a pretty hard time here despite actually being right. We have to become more business like and make sure that any client we see has the potential to be profitable for us.

    Having said that, I think that the issue that most of my colleagues above have is that the FSA has ramped up our costs so much that there are now very few clients that we can service profitably.

    That is really rather sad and not what regulation was intended to do in the first place.

  14. I think most IFAs would agree that in the past we have played a ‘Robin Hood’ role, where some clients make us significantly more money than others, and this covers the time we spend with less profitable clients. Clearly this is going to be much harder from 2012.
    However for me the real loosers are members of the group pensions we run. At present the employer pays on average 5% into members pensions, and from the 0.8 to 1% AMC we are paid enough to carry out a 2-3 hour full financial analysis with each member. As a result of the retirement analysis in particular, members contributions increase significantly, and ALL are on track to have the level of income they want at retirement.
    From 2012 we won’t be able to offer this service, and it is the members who will loose out.

  15. Steven Farrall (Adviser Alliance) 15th June 2011 at 2:52 pm

    I know what he’s getting at – we must not be charities – but he’s missed the point.

    The RDR disenfranchises many clients from Independent Advice by making an authoritariian judgement on how clients remunerate their advsiers. Essentially commission – if used wisely – permist the less well off to finance our fees. It is neutral to the reduction in the clients capital whether e pays us a direct fee or uses commission. It is opportunity cost neutral. To ensure an open and free market the only requirement is that any commission is fully disclosed.

  16. @ Jason,

    We run a number of group pensions using Transact where each member has their own on line account and pays us 1% on all money going in and we get 1% on the annual aggregate.
    All of the clients involved including the employers really like and embrace the process and we certainly get enough to allow us to properly service every client and ensure that they meet their own objective and allow us to meet ours.
    People who might otherwise have just been scheme members have become real clients and have moved other assets into their accounts – Win Win we call it. Oh and we do Group Life and other aspects of employee benefits as well.

  17. Martin Bamford 15th June 2011 at 3:32 pm

    @Mike J

    Could they actually afford it in the first place, or was advice only available to them because a) product providers lent you/us the money against future product charges, and b) you/we could cross-subside with the revenue from profitable wealthier clients?

  18. Martin Bamford 15th June 2011 at 3:35 pm

    @Financial Adviser dealing with normal people

    Is access to independent financial advice a right or a privilege? I watched the Panorama episode on Monday evening and it made for grim viewing, but we shouldn’t assume that the banks are the natural alternative. After all, bank ‘advisers’ will be subject to exactly the same RDR rules as IFAs from the end of next year…

  19. Martin Bamford 15th June 2011 at 3:38 pm

    @Pissed Off IFA

    I’m not saying that IFAs should only deal with the wealthiest in society. What I am proposing is that every client who wants to work with an IFA should be willing and able to pay for that business service. Is there any other business sector where the target market is so unfocused?

  20. Martin Bamford 15th June 2011 at 3:40 pm

    @DH

    “Did Hectors wallet fall out of the window and hit you ?”

    Do you really think that Hector would *ever* let his wallet out of his sight?!

  21. All this talk about clients no longer being able to afford IFA services after 2012 is not “confusing”.
    IT IS A FACT

    With up to 10,000 IFAs pushed out of the industry,this will “disenfranchise” a couple of million average earners.

    Maybe, because I have been looking after clients long before you were born (without a single complaint), i can see that your suggested damage limitation job for the RDR is only a sticking plaster on a broken dam.

  22. Martin Bamford 15th June 2011 at 3:42 pm

    @Evan Owen

    “So much for nurturing a relationship with a poor student who may one be your best client.”

    If that was a sensible business strategy, the goal would be to collect as many ‘names’ as possible, in the hope that one or two would win the lottery, receive an inheritance, rob a bank, etc. Does that really make sense?

  23. Martin Bamford 15th June 2011 at 3:43 pm

    @Simon Mansell

    You win the prize for the first comment pointing out that I am, indeed, a ‘young man’. Well done.

  24. Martin Bamford 15th June 2011 at 3:45 pm

    @Bill Crowley

    ‘Only’ £125 per adviser? They fleeced us for £141.88 per Approved Person this year. Not bad for a ‘free’ service.

  25. Martin Bamford 15th June 2011 at 3:48 pm

    @phil melville

    Well said, Phil (apart from the bit about “pompous ideology around charity”, which was probably unnecessary). Technology and the Internet poses a far greater threat (and opportunities) to IFAs than the RDR.

  26. Martin Bamford 15th June 2011 at 3:50 pm

    @Steven Farrall (Adviser Alliance)

    Is the RDR really doing that? What is stopping you (or any IFA) from continuing to ‘factor’ their revenue based on future revenue, using a third-party finance company rather than a product provider which has traditionally fulfilled this role?

  27. Neil F Liversidge 15th June 2011 at 3:51 pm

    We need to be more analytical and take this above the level of Martin is right / Martin is wrong. I’ve always done stuff pro bono and we turn nobody away for being poor; if they have a need we can fix then we do try to fix it. But that doesn’t mean I am happy to sell myself cheap. Take mortgages for example. We charge an up-front £295 advice fee for which we undertake to research the whole market and if appropriate recommend a direct deal. To anyone with a) a brain and b) the willingness to pay a fair rate for the job, it is an excellent deal. However some reject it, even when the reasons why have been explained, which is fine by me. If they won’t commit to paying me £295 why the hell should I commit to a 2-hour round trip and an hour-long factfind plus more time spent on Mortgage Brain back in the office? Why the hell would I want to commit time to a ‘client’ whose commitment to us is non-existent and who is probably fishing for deals on the Internet at the same time as he has his estate agent sourcing deals and he’s wandering in and out of high street lenders (and probably lying about his credit history!) There is a price to pay for advice and we sell ourselves short if we don’t insit on a fair rate for the job. I started out by saying we need to be analytical, so here goes: Surely the real problem is the excessive cost of regulation, specifically 1) The FSA itself; 2) The cost of the FOS largely thanks to its lax rules which encourage liars and claim-chasers; 3) the FSCS which need topping up every time the FSA fails to spot a crook/idiot early enough. If RDR does make advice less affordable the root cause is the failure of the system behind it, the RDR has just focused the problem as a lens focuses the rays of the sun. And that, of course, is how we all get burned.

  28. True Martin but as before they will NOT be subject to the same scrutiny.

  29. You may be a young man now Martin but it will not last long – ask your dad.
    After a few life experiences you will no doubt feel different about things.Age usually rubs some of the smugness away.

  30. Martin Bamford 15th June 2011 at 4:21 pm

    @Anonymous | 15 Jun 2011 4:18 pm

    Age clearly rubs away some of the confidence to put your name against your comments as well…

  31. @ Martin

    “If that was a sensible business strategy, the goal would be to collect as many ‘names’ as possible, in the hope that one or two would win the lottery, receive an inheritance, rob a bank, etc. Does that really make sense?

    Don’t be ridiculous.

  32. This article goes nowhere – the writer ran out of momentum half way through and serves up a ‘solution’ at the end that carries no merit whatsoever.

    The traditional IFA model has always allowed for ‘pro-bono’ cases to be ushered through the advice machinery with no complication whatsoever – it doesn’t need a charity to do it – IFAs have been doing it for ever.

  33. Anonymous | 15 Jun 2011 2:22 pm 15th June 2011 at 4:35 pm

    You say: “Would you all expect a solicitor to act on behalf of a client who has no money and allow them not to pay?”

    Answer: Yes in criminal law its called legal aid
    and in civil law they often work on no win no fee!

    Its not a question of working for free its a question of subsidising earlier work for later gain!

  34. Well this has certainly opened a can of worms. I dont think that any of the contributors or the FSA should decide which clients they deal with. It is up to that individual. There will certainly be elements of society who will be disenfranchised and they will be hyndreds of thousands. Going back a number of years there was a group of companies known as Home Service who dealt with people whos incomes were not large. Yes the cost of running these was expensive to allow for the collectors, but at least they had some life cover and savings no matter how small. The collector “advised” they said you need some life assurance/savings. What is wrong with that.

  35. Anyone else think Martin & Nic Cicutti would make a good double act?

  36. No a solicitor does not always charge the client have you heard of legal aid!
    I think it is against the principle of TCF, thanks for your business in the past but im afraid you cant afford me anymore so you now have a choice, no further advice from anywhere, go to the Bank (oops Panorama) of course you could go down to the local supermarket or if you like you could surf the net providing you have a computer and know how to use it and understand you attitude to risk and the ins and outs of all the available products and trusts…….. umm really fair isnt it!!!???

  37. I like being in business. When you grow up with business owners as parents, it is almost inevitable you will end up doing something similar.

    Yep- especially if your dad gives you a job.

  38. @ Phil Melville

    Thanks for the tip Phil.

  39. Martin Bamford 15th June 2011 at 5:40 pm

    @Anonymous | 15 Jun 2011 5:08 pm

    Thanks, Anonymous. Maybe I can give you a job one day? I think my car needs a wash…

  40. No-one is preventing you from dealing with whomsoever you like and these ‘poor’ people often have plasma TVs, holidays abroad and all the rest of it.

    Let’s not lose sight of the fact that many of these people pay £60 an hour or more to have the car serviced or the equivalent thereof to have the washing machine fixed. They are not ‘poor’ they have simply been conned over many years into believing that they can have free financial advice and that they don’t ultimately pay the commission that goes to the sales person.

    As a business person, assuming you are, it is up to you to decide whether or not you can deal with a person or group of people profitably and then, if you cannot, to decide whether or not to deal with them anyway. It’s your choice.

    The real ‘poor’ can’t afford the life assurance/pension premiums anyway.

  41. I think my car needs a wash? oh dear me

  42. FWIW …

    http://www.probonopublico.co.uk/downloads/You_the_jury.pdf

    Yep … 25 years and a few grey hairs later…

    Given the debate above -who will multiply may still be anyone’s guess!

  43. Why do people keep making a comparison with legal aid? Legal aid does pay the solicitor so is not at all the same as an IFA working for free in the hope of possible future business.

    I also disagree with the points made about doing free work now reaping rewards in the future. There is a comparison to be made here with the legal profession. I don’t know of anybody who has used a no win no fee lawyer when making a personal injury claim and then used them again when needing professional legal advice. If you don’t value your expertise enough to put a price on it how will anybody else?

    What we should be discussing is how to provide a service to people who may need advice, but are unable to pay high fees, in a cost efficient way so they have access to independent advice and don’t turn to their bank who I assume will be successful in their push for ‘simplified advice’

  44. Its rather disappointing that a decent point initially started into a playground squabble.

  45. Anonymous | 15 Jun 2011 2:22 pm

    Those who cant afford to pay solicitors fees (and those who probably like the polly peck chap) can still access legal advice through legal aid!

    Maybe the government should set up financial aid (at the taxpayers expense) so that low earners can access quality financial advice.

  46. Martin should ask his father how many “Frogs he had to kiss” to present his son with a functioning and profitable business to get himself shoe horned into.
    Most IFAs have built their businesses over many years of hard graft. Most have carried out tons of work that finished up being “Pro Bono” in the expectation of a long term profitable relationship.
    It ill becomes anyone to apply 20 20 hindsight in this context especially a young man who has probably never known what it means to prospect for business.

  47. They say no publicity is bad publicity and Mr Bamford (jnr) has been out of the headlines recently.

    Of course as a “media” IFA, thats can’t be good.

    But its about “Choice” whether it be “informed” or otherwise 🙂

  48. I have a simple maxim. If the client can afford my fee then I will do the work. This becomes a mindset thing and more often than not where the right amount of value has been explained to the client they will pay.

    In some respects this is a goals related issue and I want to run a profitable business so I can concentrate on the rest of my life goals. Isn’t this what we do for our clients?

    I accept there is a potential issue about certain clients falling into the hands of the banks. I believe that there is space to develop a pro bono service offering to cover these clients. Perhaps this would be a very positive way for the IFA industry/profession? to cover off the issue of non profitable clients.

    If we want to “own” the advice space and in particular independence then perhaps we need to be more proactive rather than look at all the “ills” of the industry. I suspect these ills will be here for some time to come.

  49. Think its very unfair to pick on Martins age or ‘life experience’ when disagreeing. I dont always agree with his articles but you can be sure that they always stimulate some interesting debate and many good ideas which is what these comment pages are most useful for.

    For my penny’s worth why not take a leaf out of the MAS book and offer an information only service to prospective, less well off, younger clients. A small fee per letter of authority to include a brief policy summary and a set fee per planning area (Mortgage, Protection. Investment, Pension) for information only keeping costs down, but crucially not giving advice.

    This way you are carving a path for future business and also educating this section of your client bank who are usually the ones who benefit most from a little extra knowledge.

  50. Mr Lister

    Interesting point about information only service.

    Having had this discusion in the past with my network they always respond.

    When does information stop and advice start?

    The line between “information” and “advise” is very fine.

  51. I would not think it a good idea to charge clients for information only considering they can get it free elsewhere.

    What would be a good idea is offering a more limited service at a lower cost. If the people aren’t able to pay your set fee then it can be assumed they will not require any real specialised advice such as offshore trust planning, IHT planning etc.

    Perhaps a financial plan based on the PIPSI principles whereby you work on specific areas at a much lower cost. You’d have to ensure it met TCF principles though.

  52. Thanks for stimulating another interesting debate Martin.

    I think it is laudable that so many IFAs want everyone to be able to afford financial advice of some sort. The question remains: what to do about it. Complaining about the FSA / RDR will probably not help. Henry Ford had similarly laudable aims – he wanted everyone to be able to afford a car. So he invented mass production and changed the face of manufacturing and the automotive industry.

    I think that Phil Melville is probably on the right track although clearly much more is required. The future will happen whether we like it or not. It is a case of innovate or flounder.

  53. Swanny/Austin Mason

    Both valid points on the info service and particularly the line between info/advice. But I believe it can work for the right section of clients if marketed correctly.

    I suppose I’m taking more about an educational, rather then information service in a way.

    Yes similar information is available for free but to establish an adviser relationship with further info at the end of the phone and (hopefully from our point of view) the need for advice is I believe invaluable and something people will go for.

  54. Did Martin ever read the old Superman comics that featured a Bizzaro parallel world. Of course he did; he lives on it.

  55. Well, as an IFA of only 18 years and a business owner in a very small community for the past 14 of them, I have established a trail commission based firm that services everyone who walks through the door and asks for advice.
    I am far too aged to pass the relevant qualifications that are now considered ‘normal’, in order to advise members of the public and have accepted an offer I couldn’t refuse from a much younger growing IFA firm, who can see the value in what we have here. I fear that most of the goodwill we have established locally will be eroded in a very short space of time, by the need to impose a fee on what has been free.
    Still, why should I care? I’ve got the best excuse ever. The FSA forced me out of business!!!!

  56. @ steve

    You havent been forced out, you,ve never had a “business”

    Keep up the good work Martin!

  57. Martin – Great article – I did wonder about the headline but was please that you contradicted it in the body of the piece. I just cannot understand those advisers who seem confused about their role in life. As you say; obviously not graduates of a business school, (or even a graduate of anywhere else perhaps?) nor of entrepreneurial lineage and one suspects that apart from their current situation have never run a business before. Doubtless if they were in the Ice Cream business they would consider it their duty to give free or discounted lollies to those who didn’t have the price.
    If even as an employee you didn’t accept that profit was paramount you would probably find yourself unemployed pretty smartly. That doesn’t imply that you have to be unethical or rip people off – just ‘fish in the right pond’.
    As you may know I have been saying this for years. I am glad I now have someone else who is likeminded. You of course put it a lot more gently and diplomatically than this old curmudgeon!
    Profit is why a business exists. Creating a pleasant working environment and treating staff well isn’t altruistic – it helps profitability.
    Likewise treating clients well. After all we are in a service industry so we need to try and offer the best service possible and concentrate on those who can afford and appreciate it. If then we have sufficient resources and are so minded the n perhaps we can use some of those resources to help the less well off. But we can’t do that as a business proposition.
    Reality must rule or insolvency beckons.

  58. That is out of order Robertson.
    He did have a business ask his clients or the company who are paying him to take over.
    He is being forced out plain and simple.
    Enjoy your retirement Steve. You will have earned it.

  59. Martin‘s article has stimulated discussion and whilst on the surface there appears to be polarisation of opinions, there is a lot of merit in the arguments of both sides.

    I think the challenge is finding ways of ensuring profitability whilst trying not to disenfranchise certain sections of society.

    Martin said that instead of taking commission, there is nothing to stop advisers arranging alternative factoring and whilst I agree that is possible in principle, it is not currently feasible. It would of course require even those non mortgage adviser i.e. Investment only to have a consumer credit licence as well. My early submissions to FSA RDR papers suggested a common factoring system, which would have removed provider influence (commission), similar to the pass loans system.

    I agree with the principle Neil Liversidge explain earlier. Clients need to know that advice costs and for me, the best way to achieve that is to ensure they pay SOMETHING. No consideration (payment) no contract. For that reason, we charge everybody something that they have to physically pay, whether that be £1 or £1,000 is immaterial, it means they have to open there wallet and think what they are paying for. If they only physically pay as £1 and the rest comes from the contract (insurance) or from the cash account (Transact or similar), the fact the advice costs has been established.

    We can all only afford a certain number of clients not to pay up front and to do some work for the potential that the 21 year old graduate without a penny to rub together when they first come to you for advice will become the company director and a valuable client of the future. If all our clients are 21 year old graduates, we might be poor for a longtime and if all our clients are 85 year olds, we might not have a client base for much longer, so really, the removal of commission simply means we need to look at our client base a bit like a Portfolio and get the “asset allocation” right for the long term.

    I do continue to worry that the RDR is just too much at the same time with too many unintended consequences and I just wish the FSA would take it’s foot off the accelerator a bit and allow a little more time for some of the road to be surfaced as it could still be a very bumpy ride at the moment.

  60. It amazes me that people still try to suggest that Martin doesn’t know what he is talking about. Informed Choice have looked extensively at what sectors or the market that they can profitably serve and concluded that there is a level below which they can’t make any money and / or add any real value. Incidentally it is a level lower than the one that i have concluded that we can make money add value. They have created an on-line offering to allow people to make their our arrangements for their pension and i am sure will bring out more options like that in the future.
    Do yourselves a favour, when he speaks on matters such as this, just listen, as you might learn something.

  61. @Steve Martin – A pity your post went up directly after mine as I was trying to be constructive like Martin B. I suspect your comment wasn’t aimed at me as a result.
    Those posting opinions contrary to Martin B also have valid points hence why I was trying to say it’s worth us all reading what is said whether we agree with it (at first) or not as it may move our opinions slightly now or later.
    Reading what Martin B, Harry K, Neil L and and Alan Lakey say is essential in order to form ones own opinion when there is dissinformation and misunderstandings abounding elsewhere.

  62. Thank you for all of your comments. There are some great points here, which add to the debate, as well as some ‘interesting’ comments which have made it into my top ten list of online comment insults!

    This is all about opinion and debate. When I write articles like this, I do it based on my beliefs and experience. That’s not to say I think others should share my views. The world would be a very dull place if they did.

    Thank you for being part of the conversation.

  63. Most people in the UK can afford advice, they just may not be in a position to pay for it upfront. In the past if that advice resulted in a product being taken up then the cost of the advice was paid for through a product charge and paid to the advisor as commission.

    I’m sure that if a regulator was set up for the automotive industry and brought in a rule that customers must buy their cars in a single payment and were not allowed to borrow in order to do this they would be up in arms. By removing commission as an option the RDR is effectively doing the same.

    The RDR hasn’t given sufficient consideration as to how advice can be paid for and be affordable for all. What is wrong with allowing people to pay for advice on a monthly basis through a product charge?

    If clients were allowed to agree the term that the charge was spread over and the overall level of renumeration level, then we’d have a transparent and simple means of paying for advice in a lot of cases.

  64. ” My car needs a wash” must be pretty near the top of the list.

  65. @Mark Coughlin I agree, removal of commission is not the issue in itself, it is lack of a co-ordinated method to replace it which is.
    All the FSA were telling us originally was they wanted to remove provider bias by removing commission, well OK remove provider bias and either bring back a maximum commisison agreement (Oh yes the OFT messed that option up) OR co-ordinate the factoring centrally as the FSA did with arranging factoring of FSA fees so they can be paid over the year using credit rather than in one lump.

  66. Steve (16 Jun 2011 1:26 pm), if you’re looking for an excuse to exit the market, then congratulations, you’ve found one. On the other hand, if as Anonymous (16 Jun 2011 &:09 pm) suggests you’re retiring and have earned it, then why not hang up your hat with pride and thank your clients for their custom?

    The basic facts are quite simple. Markets change: customers’ needs/wants change, the prices they’re willing to pay to have them satisfied change, the regulations change, competitors and suppliers change, the technologies we use to bring products and services to market change.

    Firms that don’t adapt and innovate in response to those changes eventually go out of business. They always have and they always will. This is true of all markets.

    Cross-subsidisation, where customer who can pay more to make up for customer who can’t, may be a good strategy in the short-term. However it is unsustainable. It creates an arbitrage opportunity and sooner or later your competitors will discover and exploit that. They will steal your higher paying customers by charging them less, and leave you with only those who cannot pay. As the Internet brings more information to more people, transparency increases, and cross-subsidisation strategies become ever more short-lived.

    If your firm doesn’t adapt in response to changes in the competitive environment, it will fail. If it’s not the RDR that gets you, it will be NEST, the Money Advice Service, the emergence of D2C offerings, socio-economic trends like increasing longevity, general economic malaise or whatever else is waiting just over the horizon, that does. No amount of complaining about the FSA or the RDR will change this.

    Unfortunately, it seems that many people who are perfectly good financial advisers lack the business skills to identify and understand these environmental changes, and to come up with strategies to thrive despite them. This is likely to lead many to exit the market, either by choice or by being forced out. New business models and innovations will be needed to fill the space they leave.

    When the market is stable, it is (relatively) easy to eke out a decent living. The more disrupted a market is, the more some businesses are able to grow very rapidly, even as others are forced out. The retail financial services market is currently undergoing significant change, and there will be some big winners and some big losers.

  67. David Cockling 21st June 2011 at 4:43 pm

    Hear Hear Martin. The defination of a “profession” over any other business pursuit is one that seeks to provide a useful service to a community ahead of profit, but a profession that does not also consider its viability as a business for all concerned ends up being no use to anyone. Also Frank Dolan is bang on the nail when he says of many clients: “They are not ‘poor’ they have simply been conned over many years into believing that they can have free financial advice and that they don’t ultimately pay the commission that goes to the sales person.”
    There is also no need to disenfranchise in most cases (and I think it needn’t involove Martin’s third party suggestion).
    Its a given that any lump sum investment client clearly has the money for the fee that would otherwise be used to pay for the commission. The person with no capital with a regular amount to save can have a separate S/O or pay no extra by directing their first premiums as fees (and this more often than not works out better for them over the term than a charge being deducted from every premium. It also removes the indemnity risk for the firm). A client unwilling to do this but willing to pay the same via commission has not understood or had the true cost explained to them.

  68. “There is more to IFAs than making a profit”
    Is that true of every IFA Martin?

  69. Martin sarcasim is the lowest form of wit dear boy.

    Before you entered this industry the UK had the best savings ethic in the world in no small measure due to the fact that long term regular savings plans (be they pensions or savings) were SOLD to the wider public and it is no doubt true to say that in my case many of those LITTLE clients are now BIG clients (those YOU SEEK NOW). The reason why so many were SOLD was that they offered the seller a reasonable return and the client a reasonable return in the LONG TERM with penalties in the meantime to discourage early encashment.

    Lets forget you for a minute and look at the wider picture. The UK (yes this Country !!!! and the latest pension debarcle is a good example) disperately needs to return the ordinary bloke into a LONG TERM savings ethic that will only be done by firstly suitable products AND a suitable encouragement for the seller to sell. Your business model cannot EVER do that and that is why RDR will ALWAYS fail.

    By the way I am just 50 and been doing this since the age of 18 and guess what I (and I will be the same as the majority against RDR) have an incredibly LOYAL client bank.

    If I am wrong (and at the risk of sounding as pompous as you) all my LOYAL clients (and those of all IFAs similar to me) will be beating a door to you (I think not).

  70. I have to agree with many posters on this thread – Martin you are a child in a Man’s world.

    The very many very people in the future who can not “afford” Financial Advice are the people who need it the most.

    Grow up and get you nose out of the bottoms of the High Net Worth clients – they will cast you aside like yesterday’s trash.

    Those that you can really help – first time buyers – people with 9 pensions they have no idea about what do do – those in debt and those that you have done £300k’s worth of Life Assurance for and you personally deliver the cheque in the event of a claim – will truely value what you do.

    RDR and the FSA have lost sight of this part of an IFA’s life. There are Roses out there to smell, but I expect that you wont get the opportunity to smell them when you are working for the FSA’s alter ego.

    So wake up mate.

  71. Having now read all the post – my opinion is not changed – Martin is a child in a mans world.

    Clients know the cost of advice when an IFA says to them this is what I earn.

    RDR assumes clients are thick, they are not, they just need to be able to TRUST (this word in capitals for an obvious reason) the person they receive advice from.

    Commission is not evil, it is merely a cost a clienmt accepts without having to actually have to wrire a cheque for.

    My father ran his own business – it was called a farm. He understood paying for things and having the money to do so. Then he was a man my son. Try reading Kiplings Poetry.

    I post late at night because I have been seeing clients the NEED my advice (again word in capitals for a reason).

    I note the time’s of your childish posts in response boy and frankly you should be out seeing clients at these times.

    Because , and I apoligise for paraphrasing Kipling, if you can truely advise when all about you fall then you are a man my son. _

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