Here is a message for Independent Financial Advisors (IFAs).
“…YOU’RE CHARGING TOO MUCH, that’s all there is to it. You’re not worth your £100+ per hour. If there were fewer of you, doing more work and servicing more clients for a greatly reduced rate, you would still get a salary that you would be unlikely to earn elsewhere. Your advice is little more than common sense anyway and, all the information is out there for those that choose to look. Generally speaking you are not clever people that can turn lead into gold. The game is up!!!”
OK, IFAs, before you all start foaming at the mouth, let me tell you that those words come from ‘Mr Joe Soap’, commenting on last Tuesday’s article about the forthcoming RDR-induced squeeze on financial advisers.
If you haven’t had a chance to read it yet, here it is again: The end of the IFA ‘long con’. It certainly ruffled a few feathers and sparked a number of points worth discussing. So in today’s Penny Sleuth I thought it would be a good idea to take a look at what you, the readers, are saying.
IFAs fight back
Discussing a topic highlighting how IFAs have been hoodwinking customers for years was bound to incur a fierce reaction. Some of the comments left were far from favourable. “One of the worst thought-out articles I’ve ever read.” “Idiocy.” “A crass piece of journalism.” “Poor.” “The worst article I have seen.” “Absolute rubbish.” “The worst piece of unbalanced journalism I have read since I last looked at the Daily Mail.” Now that one really hurt!
So as ‘Kent Man’ said “the IFA club has decided to rubbish this article”, which is no more than I would have expected. When your livelihood is threatened it is only human nature to get a bit tetchy. As it has become easier to share content and post comments online, we, the journalists can be challenged, which all adds healthy debate.
The IFA defenders made some fair points. If the man on the street refuses to pay for advice from IFAs he may be “left with dire restricted advice from 21 year olds in high street banks.” Not a happy prospect, I agree!
‘Graham’, meanwhile, took me to task for suggesting that IFAs may not say “my advice is to do nothing” while pocketing their fees. “Presumably you wouldn’t settle your surveyor’s fee when buying a house if he found nothing wrong, either. What price is peace of mind?” Fair point.
And ‘Louis’ reckons that I should be directing my fire elsewhere. “Blame the FSA for their incompetence,” he suggests. He is on to something that I have covered before. Over the years the financial services industry, with the help of successive governments, regulators and goons in the City have created a world of savings and investment that is excessively complex. And so a whole new industry exists, one where IFAs flourish as they try to unravel the mess and make some sense of it.
Of course there are good IFAs and not so good ones. We forget the good advice while remembering the bad – this for example from ‘drmr’: “I recently went to an IFA to arrange a mortgage. His recommendation was a mortgage with the ‘commercial arm’ of a building society that was at an initial rate of 0.4% higher than a mortgage I’d found on the internet the night before with the same building society (all other conditions/fees the same except that his recommendation also reset to an SVR 1% higher than what I found). He still got £400 just for applying for the mortgage I’d found. IFAs may be more useful for more complicated matters but if I’d used his recommendation I’d have just been ripped off.”
Better off alone than with an IFA
But no respondents seemed to quibble with the essential point of last week’s article, which was that the replacement of trail commissions with up-front fees is going to make life very difficult for the IFAs. Most were clearly just in the mood to stick pins into the Tom Bulford effigy.
Many compared the advice given by IFAs with that given in Red Hot Penny Shares. But the ‘my advice is better than yours’ yah-boo-suckery misses the point.
Red Hot Penny Shares is not a comprehensive financial tool-kit. It is a publication for those who want to enjoy the thrills and spills of the penny share market. It is cheap to subscribe and it covers financial warnings. Penny share selection is a hit and miss affair and neither I nor anybody at Fleet Street Publications would suggest otherwise.
We do not claim that Red Hot Penny Shares is essential. But IFAs have this notion that we cannot do without them. The rider to so many financial products says “if you are in any doubt, you should contact your financial adviser” (as if we must surely have one!). In my opinion, this should not be necessary.
What is necessary – especially with penny shares – is that you make the risk of investing explicit to the investor. That goes without saying. But I believe that by getting a basic grasp of personal taxation, of shares, bonds and deposit accounts anybody can, quite simply, manage their own financial affairs. And so long as they are prepared to devote a little time to it, I firmly believe that they will be better off than they would be if they consulted an IFA.
Of course if you are not confident that you can do any of that, then you can always try and find one of those decent IFAs. But I think this is a job that most investors – especially clued up ones – can easily do themselves.
I look forward to the next torrent of abuse…