When all you are looking for is the best advice or best outcome for your finances.
Investors face ‘wild west’ in hunt for independent advice, is the conclusion of Telegraph Money 22/02/20; As lead generators that advertise on Google against such terms as “find an independent financial adviser” pass the details on to restricted advisers, such as Tilney and St James Place.
The suggestion is that restricted is a sales focus, as restricted advisers are paid to sell certain products, whereas the independent financial advisers (IFAs) are “better” and “should give the best outcome” as they can choose technically from the whole funds market; Though in practice a dedicated analyst chooses the product for them.
Here’s the thing. The vast majority of Independents – whose fees are contingent on product sale or a percentage of product sold – are also “paid to sell product”.
And, the independents aren’t actually “independent” of product providers, at all, so long as they hold “agency agreements” with product providers, which all financial intermediaries do! That is, all regulated financial advisers are not strictly, i.e., contractually, “independent” of product providers in the true sense of the word, and unless they are the rare breed called fixed-fee financial advisers, their focus is on sales too.
The West just got wilder!
So! here’s the real shock…
When a member of the public goes on to the website ifa-direct.com looking for “better advice”, or the “best outcome”, their details are passed on to agents of either a few or multiple product companies, where the focus is principally on sales.
And, conflicts were highlighted in an Financial Conduct Authority (FCA) paper published this week, the financial intermediary regulators, which said: ‘We have concerns that advisers (restricted and independent) may be recommending products with an ongoing advice requirement, potentially instead of more suitable options that do not have ongoing fees.
Here are some safer alternatives.
- The fixed-fee, fiduciary financial adviser.
- The non-intermediating financial planner.
The former charges a fixed fee for the job. The fee is not contingent on product sale or amount of product sold. Furthermore, the adviser takes an oath to place client best interest first. If you are using an intermediary, whether they be restricted or independent, check that they have a contractual obligation to place your best interest first and are rewarded without conflict of interest by way of biased incentives.
The latter is not an agent of product companies, they are not therefore regulated. They are therefore unable to give advice to you on whether to buy or sell a specific investment. They can give generic advice and financial education. This is often referred to as the ‘non-advised’ route.
With the non-intermediating financial planner, you must check on their experience, expertise and ethics, to satisfy yourself of the character of the adviser as a regulator would have done if they were regulated. This should be clear and obvious from their bio, social presence and reputation. And, check too their fiduciary responsibilities under their terms and conditions.
“But, I want someone to pick a good product for me.” You might say.
Here’s the thing …
American economist Eugene Fama under his efficient-market hypothesis concluded:
“It is exceedingly difficult, even for a professional investor, to beat the market by trying to predict stock-price movements in the short term. Therefore, it is much better to invest in a broadly composed portfolio of stocks instead of engaging in a futile stock-picking effort.”
In short, product-pickers don’t add value after fees are taken into consideration.
It is proper financial planning that adds real value.
According to the FCA’s Sector view for 2020, ongoing restricted and independent intermediary advice charges have increased by 19% to £3.4 billion in 2018.
I do hope these clients are receiving proper financial planning and aren’t simply paying for product-picking. Or worse, paying without receiving any ongoing service whatsoever.
Non-advised saves the cost of intermediation. 60% of non-advised consumers choose to use platforms to build their own portfolio from a wide range of funds and shares.
How? With generic advice and financial education:
Like the Good Money Guide,
Morningstar fund research and insights
Or Which? Guide to money and investing.
It’s not that difficult to set up a good, low-cost self-maintaining, broadly composed investment portfolio in less than an hour. And, simply not have to think about it.
And save 1% per annum on intermediary charges, by going non-advised route.
For example, Which? found in their report with £500,000 worth of investments in a ‘moderate’ risk portfolio, a reduction of 1% per year in total charges amounts to a saving of £75,000 over 10 years, rising to £240,000 over 20 years.
What you need though is a financial educator you can trust, so you can judge the good information from the financial pornography of Google’s Wild West.