7th December 2011
IFA letter of the week: Pessimist or well-informed optimist?
As I am sure many will be aware, our “This is what my clients think about the RDR Mr Sants survey” is causing some noise out there and within that noise I received this e mail that I felt summed up so many issues the industry faces.
In this case the letter came from an RDR ready firm thus making the comments even more relevant and indeed timely.
Derek,
I have just completed your survey.
1. My firm is very FSA compliance driven, and we are already RDR compliant.
2. Having now met most of my ‘preferred clients’ (segmentation exercise) and discussed fee charging, I feel that I can now comment with some confidence:
a. There is a strong tendency for clients to focus on what I am saying to them
b. If it is all about fees, then I can say that this eventually becomes a £s based discussion
c. Clients then tend to forget about the benefits of the advice and that becomes relegated
3. One problem is that new clients do not necessarily know in advance of meeting with me what exactly what I can do for them
a. People will “not pay a fee for the solution to a problem that they do not think they have”
b. Therefore up-front fees do not work, and people will not pay for that service
c. They will only pay for a specific solution, once they understand the value of it
d. But: once they know the solution, I have nothing left to sell them!
e. So the fee quote will always be seen as being too high.
4. The FSA simply do not understand that people do NOT want to buy anything, or worse still, be sold products. What people want is guidance and advice.
a. Yet ironically, they prefer for me to be remunerated from the product itself
b. I have often compared a simple ‘indemnity commission’ remuneration proposal, paid for out of an annual management charge (amc), with an up-front fee, and on EVERY occasion clients want the increased amc.
c. And this is true even if the projected benefits of the amc/commission/indemnity structure produces a lower fund at maturity than the up-front fee!
Finally, I have a personal view that someone very high up in the FSA has a sinister, malicious and destructive agenda about IFAs generally, probably brought about from an isolated incident that is not typical of the better advisers.
Consequently, there is a real danger that RDR may well actually completely destroy the distribution of financial products, and deny many people of the opportunity to buy family and business protection policies, invest sensibly, and fail to fund adequately for their retirement.
However, by the time that the full effects of RDR are known, it will be far too late to change anything, and the perpetrators will have long since retired on their fat, industry funded defined benefit pensions!
Douglas RG Baillie
Director
Douglas Baillie Ltd
PS I have given some further thought to the future for IFAs.
1. Clients are not aware of, nor are they interested in our FSA compliance responsibilities
2. However, these responsibilities are very expensive to manage and maintain
3. I have some difficulty in seeing how in a fee-charging regime, that clients will really ever understand value
4. FSA compliance is now a major on-cost, and clients do not want to pay for it, and they do not want the endless documentation that the FSA tells us these clients want
5. The reality is that clients never read much of the Key Features, agreements, personal illustrations, suitability letters, and other compliance related documents we have to foist on them.
Having said that, I can also see why the FSA are doing what they are doing. But they are in grave danger of swamping and drowning advisers in so much compliance red tape, the few are likely to survive.
The inevitable effect is that ordinary people will, as a direct consequence of over regulation, have inadequate financial protection, little or no savings to speak of, and no proper pension provision.
This in turn will add to the financial burden on the state at a time when austerity is already a byword for normality.
Only time will tell if Douglas is correct, if things go on as they are I suspect he will be proven right
If you have not yet completed the survey or wondering what it is all about, click here and of course complete.
Comments (2)
With respect to fees I really have to say that I have never found this to be a problem. I have been charging fees and operating CAR for over 15 years now. It is certainly not uncommon at all for clients to write out cheques. And in response to Mr Baillie I only charge for advice - customers pay whether a product is purchased or not. The product comes free. The advice is tendered in report form. Therefore I do not sell.
I am not one of these IFA consultants, taking it upon myself to tell others how they should run their affairs, or to suggest that my way is the best way.
It works for me and has done for years. I'm no guru, so if I can do it anyone can. I guess it probably comes down to segmentation. That is something else I don't do now. I segment at outset - in other words I only take on those who 'fit'. I can only suggest that if you have problems you are not segmenting effectively.
As to the other elements of the survey I really can't imagine an adviser telling a client that exams and better qualifications are a waste of time. I can just imagine the reaction that might bring forth!
It is the fees and qualification elements of the RDR that have brought forth the biggest squeals. Unfortunately the (from my perspective) more important issues have largely been ignored. Yes, the ever increasing burden of bureaucratic hoop-la imposed to (an extent) justify the jobs and salaries of those at Canary Wharf are hugely irritating and very expensive and one really wonders how the cost benefit analysis of this works out. On the one hand the regulator wants to reduce the cost of advice, but the increasing burdens imposed do exactly the opposite and they seem not to be sensitive to this inconsistency. But the elephant in the room is the nonsense of all the new divisions. I have even come across those who work at the FSA who are uncomfortable and unsure of all the finer points and it looks like this will eventually turn into a monumental farce. But then even the most pro regulation people are beginning to come to the view that much of what emanates from No. 25 is becoming farce. Today we have Mr Cameron rushing off to Brussels to try to protect the City. Pity he doesnt look closer to home.
Harry Katz
Norwest 08/12/2011 09:29
Rod Leonard 08/12/2011 11:56
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