The Financial Planning Professional: Part 4 of 6
A study published yesterday in the Telegraph found that most financial advisers are “fee for no service”, in other words con men.
A fee for no service is the failure to deliver ongoing advice services to financial advice clients who were charged fees for those services.
The financial advice industry has stolen big-time from its customers for years in the form of “fees for no service”, which some countries discovered when investigated even includes the accounts of dead people.
That’s the problem with the asset-based fee model. Whilst it keeps most firms afloat, if a fee is taken a service must be delivered in any trade or profession. When in most cases it is not, the firm risks having to face huge compensation claims.
In other countries it’s a national scandal. Here in the UK apparently not.
Australia’s major banks and insurance companies are now facing a $1.15 billion compensation bill to repay victims of their fee-for-no-service scandal, and the size of the bill is still growing. The scandal stretches back to 2008 at least, and hundreds of thousands of customers have fallen victim.
That’s not happening here in the UK.
The Financial Conduct Authority, the UK regulator, has known about fee for no service for years and does absolutely nothing about it … some might say because of conflicted interests in corridors of power and lobbyist legislation.
As Money Marketing explained in 2016: “The question of what is appropriate to charge for advice may be one for the FCA, but the UK regulator has previously stated it does not want to intervene in policing advice costs.“
The FCA even admitted their failing last month, when they said:
“Over time, these charges can have a significant negative financial impact for consumers.” (PS20/6 s3.1).
“Our view is that many consumers would not benefit from ongoing advice as their circumstances are unlikely to change significantly from year to year.” (PS20/6 s 3.10).
The investment industry has successfully fought genuine customer-focused reform at every step of the way over many years. And, here in fee for no service we see yet another example.
Even when we see it in our national newspapers, no one calls it out.
See yesterday’s article in the Telegraph – 18th July 2020:
“Financial advisers charge clients thousands of pounds annually – but don’t see them for years.”
“More than half (53pc) of 1,000 people who have between £50,000 and £1m invested with a financial adviser had not had a face-to-face meeting with them for two years or more, according to Bancroft Wealth, the wealth manager that conducted the study.”
“They paid on average 1.5pc a year in fees, or £2,835 based on the average portfolio size of £188,948.”
“Bancroft’s Keir Ashman said: Some were paying £7,500 a year and we’ve even come across clients in the past paying over £30,000 a year.”
Well it is illegal.
And if you took the fee for no service adviser to court, you would get your money back.
An adviser should refund to each client the fees paid for the service they did not receive. Each client should also receive interest, reflecting the lost investment returns on the fees that were inappropriately charged.
In other countries the regulator intervenes in policing advice costs, and this compensation calculation is automatic. For example, the Australian Securities and Investments Commission.
But Brits don’t bother.
Because firms lobby the regulator. The regulator doesn’t police fees.
The Brits like and trust their advisers. Have done for years. And, Brits won’t hear a bad word said about those they trust. As one telegraph reader put it:
“My IFA is more expensive than average based on this article, but good performance and always available, has been IFA for me for +15 years and my parents before that. Trust is imperative in this relationship and remember always that it’s ‘your’ money so ultimately your responsibility.”
Good performance! That adviser probably didn’t beat market returns. As many don’t.
If you want to read more about the senselessness of good performance claims by IFAs take a look at the evidence. https://www.evidenceinvestor.com/home-uk/
Truth is, as another Telegraph reader put it yesterday:
“If you are daft enough go for: Active fund fees. DFM fees. Adviser Fees. Platform fees. Trading fees. Bid offer charges. FX fees. Auto fix fees. 50% of the population is financially illiterate and includes high earners.”
Some fee for no service advisers do not think they are doing anything wrong.
They say, “The adviser can provide ongoing service out of the goodness of their heart.”
“Did you think yourself that taking money to which there was no entitlement raised a question for criminal law?” you might ask.
“Dishonesty would go to the intent and I don’t feel it was dishonest in that respect,” would be the reply.
Your conclusion, “Charging for what you do not do is dishonest. No-one needs legal advice to tell them that. The root cause for what happened was greed; the greed of advisers.”
See for yourself what Telegraph readers had to say about it.
“Maybe there is a market for financial advisors to the rich and stupid but in my experience these advisors offer virtually nothing and charge a fortune for it. All the advice you need is free on the internet. Advisors offer no magical door to better products or decisions. All they want is to plug into your assets and charge a fee.”
“The capacity of people to be taken in by con men never ceases to amaze me. Why pay such people fees to invest in what pays them commission rather than invest yourself after a modicum of research into a wider range of products?”
“If they are so wonderful, why don’t they keep their secrets and make themselves a fortune. No, it is easier to make money out of poor advice, which in the end is on a guess and really only a gamble. It’s easy to spend someone else’s money.”
“It would be worth the fees if they knew which shares were going to go up and down. But they do not; nobody does. I do it myself and buy ETFs with fees like 0.03%.”
“What ‘financial advisers’ never mention is luck. And you need a lot of that, ‘expert’ or not. What amazes me is that punters continue to pay someone to lose their money. Remarkable. The real money is in taking a 50-year view and sticking with it. That is what charities and some wealthy families will do. Churning is much loved by experts, but it rarely pays in the long term.”
Financial advice will not be a profession until the conflicts that pervaded the industry are addressed.
Eliminate conflicted payments from your firm. Avoid the liability. Make payments fair. Charge fees for service.
Making financial advice a profession is important not merely for its own sake, it is a necessary step to protect those who seek financial advice.
Contact us today to find out how the Academy of Life Planning can help you transition from Financial Intermediary to Non-Intermediating Financial Planning firm.
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