Never Trust an IFA?

‘Never trust an IFA, they are commission-grabbing ******s.’

By Mike Deverell – Posted from

This is a typical comment on Citywire’s forums – often underneath one of my articles – and seems fairly representative of the average Citywire reader’s opinion of Frankly, many of those in the industry have only themselves to blame for this shoddy reputation. Although I have come across many fantastically professional, diligent and honest individuals during my career, I have also met my fair share of salesmen only interested in earning the maximum commission.

Despite this, I believe financial advice is severely undervalued in this country. The value it can add, both in pound-note terms and in terms of comfort and confidence, is seriously underestimated.

I normally write about investment matters, but I thought it was time I set the record straight about our industry, the sharp practices to look out for, the changes that are afoot, and the value that good-quality financial advice can add.

It’s all about incentives

As anyone who’s ever read Freakonomics can tell you, people respond to incentives whether consciously or unconsciously.

Commission is an incentive that misaligns the interests of the client with that of the adviser (salesman). A commission-based adviser’s objective is to sell a financial product since he or she will not be paid otherwise. This product may well meet the client’s objectives, but it may not. The commission incentive ensures that client and adviser have a different objective.

If paying by fee, the adviser gets paid whether or not a product is sold. A fee-based adviser is much more likely to recommend a client keeps their money in cash, or uses it to pay off a mortgage, for example.


Mis-selling scandals

Commission has been a major component of almost every mis-selling scandal, whether it involves IFAs or not. For example, the Financial Services Authority (FSA) recently expressed concerns about how poorly constructed incentive schemes caused mis-selling of payment protection insurance (PPI) at banks.

Luckily, commission is about to be banned under the retail distribution review (RDR). This comes into play from the beginning of 2013, and will go a long way to cleaning up our industry.

However, an inappropriate fee structure can also wrongly incentivise advisers or discretionary managers. For example, a typical trick by many wealth managers is to charge a relatively small annual management charge, but also charge, say, £25 for each trade.

This gives firms an incentive to trade, which might not necessarily be in the clients’ best interests. At Equilibrium we worked out that a single switch (which remember is actually two transactions – a sale and a purchase) for all our clients could earn us £200,000 if we charged £25 per trade! That is an incentive we do not want to have.

Even after RDR you will need to think carefully about whether the fee structure being proposed offers an inappropriate incentive.

The value of advice

Although it is important to be aware of the potential for sharp (or just poor) practices, professional financial advice can be invaluable.

Financial advice covers a wide range of areas, but quality advice can, among many things:

  • Reduce the amount of tax you pay, whether that be on income or gains from investments.
  • Help protect your family against the unknown with appropriate insurance.
  • Help you plan for the future, knowing how much you need to save for retirement and work out when you can afford to retire.
  • Reduce inheritance tax on your estate.
  • Build appropriate investment portfolios to match your risk tolerance and objectives.

Most Citywire readers have as much chance of selecting decent investment funds as the average IFA. Unfortunately, selecting a good fund manager is a fairly minuscule piece of the investment jigsaw, with asset allocation accounting for more than 90% of the variance of investment returns. Quality investment advisers therefore focus on asset selection rather than fund selection.

Do advisers avoid investment trusts?

One myth that I consistently see repeated on Citywire forums is that advisers only recommend investing in unit trusts or open-ended investment companies (Oeics) instead of investment trusts. They do so – so the story goes – because they get paid trail commission.

Quality advisers who use wrap platforms rebate trail commission back to their clients. They also get a discount on annual management charges, which makes unit trusts similar in cost to investment trusts, often cheaper. We find that the discounts we can obtain on funds often pay for a large part of our fees.

After RDR, trail commission will be banned, and to call themselves independent, advisers will have to consider investment trusts, exchange-traded funds (ETFs) and a much broader spectrum of products as well as unit trusts.

Some may decide they haven’t the time or resources to review all the relevant types of investment. These advisers will no longer be allowed to call themselves ‘independent’, but rather they will offer ‘restricted’ advice.


The RDR also means advisers must now achieve a much higher level of qualification before being allowed to give advice. The previous benchmark for financial advisers was the Certificate in Financial Planning. This was a level-three qualification. From next year, all advisers must be qualified to level four as a minimum. All advisers will also have to sign up to a code of ethics and be a member of a professional body.

To be sure of professionalism, look for chartered financial planners who have qualifications equivalent to degree level. Chartered financial planners must also have a certain amount of experience and carry out a set amount of learning each year to maintain their chartered status. The same can be said for certified financial planners, although their qualification is equivalent to the first year of an undergraduate degree course.

Frankly, most quality financial advisers can’t wait for these new rules to come into play since this will force the unscrupulous and the unprofessional to either clean up their acts or go out of business.



The Petrol Elephant (Republished from

What does it take to be a good British citizen these days? Well, it would seem from watching ITV news last night that it involves cheering on your local authority as it throws millions down the drain, being overwhelmed that your government spent £25bn of your taxes on two weeks of sports fun, but screaming blue murder if your local shop short-changes you by a quid.

How else can one explain the clip attached to this article?

After a long campaign the Office of Fair Trading has delighted some by asking for evidence to see if consumers are being ripped off by petrol companies.

The main accusation, that when the wholesale price of oil falls, the drop is not fully passed on to punters at the pump. We’re being ‘ripped off’ apparently! A cab driver adds “someone is making a lot of money” as Laura Kuenssberg declares that petrol has “nearly doubled” in recent years

(hands up who can remember when fuel was 65p a litre)

Laura helpfully gives us this graphic (just ignore the mathematical fail for now).

Now, from that, who do you think is ripping us off? Petrol companies delaying passing on a few pence in reductions? Or do you reckon there’s an entirely different entity causing it? Our friendly cabbie is upset that fuel is cheaper all over the continent. Who does he think is responsible for the disparity? Companies which spend £billions in research, development, prospecting, distilling, and delivery of the product or and this may be an off-the-wall view in our wibbly-wobbly modern bovine nation – could it be, perhaps, possibly, the 80 f++king pence on every single litre screwed from us by the government? Complaining about oil companies fiddling with a few pence here and there is like being happy to be cracked over the head daily by a thug with lead piping, but running to the police because a market trader trod on your foot.

So the OFT is going to spend some of those tax resources on investigating petrol suppliers. Fantastic, I’ll bet they’re quivering in their cowboy boots; will quickly rush to knock a few pence off prices and the public sector will claim a wondrous success. Except that by the time the OFT reports back, Osborne will have already slapped another planned 3p on duty and harmed the country that little bit more.

Our findings suggest that a 2.5 pence reduction in fuel duty would result in the creation of 175 thousand jobs within a year and 180 thousand jobs within five years of such a reduction. Such a reduction, we estimate, would not result in any fiscal loss to the Government, while GDP would receive a boost of 0.32 per cent within a year and 0.34 per cent within five years. The government screws motorists to the tune of £48bn per year yet ITV don’t feel any of that merits a mention. As elephants go, that’s a mammoth of one running around garage forecourts that one of our
major broadcasting companies didn’t quite notice.

Good grief

Nine million use credit cards and payday loans to cover monthly household bills

Nine million use credit cards and payday loans to cover monthly household bills

By Tara Evans, 12 September 2012  Reproduced from

Almost a fifth of people are using costly forms of credit each month to help pay household bills, according to new research.

Some 7.5million people use credit cards with a further million turning to controversial payday lenders, according to estimates by bank Santander.

The figures signal a trend of households to turning to expensive forms of credit that add to their financial squeeze when the times comes to repay the money.
Debt: Millions of people are turning to high forms of credit to help pay monthly household bills

Debt: Millions of people are turning to high forms of credit to help pay monthly household bills

Typical credit cards interest rates are about 19 per cent (APR), but more worrying are payday loans which often charge eye-watering rates of about 4,000 per cent.

The short term loans are designed to bridge the financial gap before payday but if people are unable to repay they face extortionate levels of interest.

5 Minute Debt Test

The amount being borrowed each month adds up to £3.6million, or an average £259 for each borrower, according to the research.
There are also 4.2million people that turn to lower cost borrowing, Santander claimed, with around 17 per cent of those who borrow to make bill payments dipping in to an arranged overdraft.

Reza Attar-Zadeh, banking director at Santander, said: ‘In an ideal world, household bills should be one of the first costs to be covered when payday arrives, but as the research highlights, this isn’t always possible.

‘The cost of living is going up, driven in part by the rising cost of household bills, and as a result, millions of people are regularly borrowing money to make ends meet which cannot be sustained in the long-run.’

The research also revealed that despite 28 per cent of people looking into alternative payment sources to help cover bills, only 32 per cent regularly check for cheaper deals on services like utilities or TV subscriptions.

While only a quarter of people bother to check that they have sufficient funds in their account by scheduling bills or direct debits just after payday.

Younger bill payers are more likely to borrow money to cover bills, with 38 per cent of people aged 18-34 doing so.

This is compared to 30 per cent of those aged 35 – 54 and 17 per cent of over 55s.

More people in London use loans to cover bills than anywhere else in the UK, with 33 per cent doing this in an average month.

In contrast, the lowest is the North East, South West and West Midlands where just 22 per cent are doing so.

Read more:

A decade of saving awaits first-time buyers

A decade of saving awaits first-time buyers before they have enough money for a deposit to take the leap onto the property ladder.

By Michelle McGagh on Sep 11, 2012 at 09:18, Reproduced from Citywire Money

A survey by Post Office Mortgages shows the average first-time buyer believes they will not be able to afford a property until they are 35 years old. This age has been rising steadily since the 1960s, when the average first-time buyer was just 24 years old.

Nearly half, 47%, said it would take 10 years or more to save for a deposit, and would-be buyers living in the South of England will have the most difficultly saving enough. A total of 65% of people in the South East and 56% of those in the South West said it would take a decade to raise enough for a deposit, and 47% of Londoners said it would take them far longer.

Of those surveyed many said they would find it hard to get together a deposit at all if their circumstances didn’t change: this meant getting a better paid job or inheriting some money.

Another perceived barrier to house-buying is the inability to afford mortgage payments, with 18% saying they would struggle to meet the cost of a mortgage. However, renters in the UK pay £876 a year more than the average homeowner pays on their mortgage.
Average age of first-time buyers:
Average age of first-time buyers: 1960-2009

John Wilcock, head of Post Office Mortgages, said: ‘The average age of a first-time buyer has been creeping up over the past 50 years and a perceived 10-year wait to raise a deposit doesn’t help matters.

‘The sheer size of the deposit is the most daunting thing for would-be first-time buyers, but it appears to worth the wait if it works out cheaper than renting.’

A total of 29% of non-homeowners said they would be encouraged onto the property ladder if they were offered more government assistance, and 19% said a re-introduction of the stamp duty holiday for first-time buyers would help.

Research by Nationwide shows that the average first-time with a 20% deposit pays out 29% of their take-home pay on their mortgage repayments, and the average mortgage term for a first-time buyer has increased to 28 years from 25 years in 2005 to 2007.

To find out more about the help available to first-time buyers, read this guide from The Lolly on First-time buyers: the help at hand

Do you know about the UK pension shake-up?

Do you know about the UK pension shake-up?
Auto-enrolment is one of the biggest pensions changes in decades, but most employees are still in the dark about how they will be affected

More than half of UK workers are in the dark about the huge changes to the pension system that will see them automatically enrolled into their employer’s pension scheme from October.

The Workplace Pensions Report 2012 by insurer Scottish Widows shows 52%, or 9.9 million, workers in the UK are unaware of auto-enrolment.

Under the government’s new plans, workers who do not already contribute to a workplace pension will be auto-enrolled into one – workers in larger companies will be auto-enrolled from October, with those in smaller companies will be auto-enrolled over the next five years.

However, it is not a compulsory scheme, and workers will have the opportunity to opt out. Employees will continue to be auto-enrolled every three years and must continue to opt out.

Lynn Graves, head of business development for corporate pensions at Scottish Widows, said it was ‘shocking’ that with just three weeks to go until auto-enrolment starts there was still a gap in awareness.

‘Auto-enrolment is designed for people who traditionally don’t have access to a workplace pensions scheme, such as smaller employers of those with lower incomes, and it is clear that information is still not reaching the audience it is intended to target,’ she said.
Wanting to save more

Although many employees are unaware of the changes that make it easier for them to save, many wish to do so.

Just 11% of workers said they would opt out of the scheme, with 32% of those who would not take part stating that they could not afford to save.

However, those who are willing to save want to save a lot more. The amount that workers want to save has doubled since last year, from £37.50 to £76.95, although a third of people still said this level of saving would not be enough to provide them with an acceptable standard of living in retirement.

Graves said: ‘It is clear from our research that people are failing to save enough for their future, especially in relation to retirement.

‘While it is a positive sign that people are willing to pay more into their workplace pension, substantial work must still be done to encourage people to save enough for retirement and this is a challenge for government, the pensions industry and employers.’

She added that Britain was ‘slowly waking up to the reality of how we are going to be able to fund our retirement?’, with people realising they will not be able to rely on the state to provide the majority of their income.

In fact, just 2% of employees surveyed felt the state pension would provide sufficient income.
Achieving pension targets

A total of 70% of employees surveyed said they wanted to retire at age 65, and 48% want to have an income in retirement of between £15,000 and £30,000.

Individuals intend to use a number of sources to fund this income, with company pensions the number-one source of income – 33% of people said their company pension would help ensure they had a comfortable retirement.

The state pension will play role in 40% of people’s retirement plans, and personal pensions will make up part of the retirement income for 32% of people.

Although the state pension was the most popular choice as a funding source for retirement income, individuals are realising they have to take more responsibility for their old age.

When asked whether individuals will have to take more personal responsibility for their financial security in retirement, 32% strongly agreed and 42% somewhat agreed.
How to increase savings

Employers can play an important role in their employees’ savings habits, with many of those surveyed keen to access different financial products through their employer.

A total of 39% said they would like to save into an employer pension, 17% said they would like their workplace to offer a cash ISA, 15% wanted to obtain mortgages through their employer, and 14% would like access to loans.

Jim Bligh, head of labour market and pensions policy at the Confederation of British Industry, said employers needed to review their offerings to employees.

‘All these changes in the pensions landscape offer an opportunity for employers to look at their wider reward package. Employers need to ensure that they are fine-tuning their reward package to the needs and demands of their employees, so they are able to recruit and retain the best talent available,’ he said.

‘With personal incomes under pressure, we are seeing a greater appetite for a mixture of long-term and short-term saving options being available to employees.’

Written by Michelle McGagh, Sep 10, 2012 at 00:01 posted on, follow the link below to read more;

What you need to know about auto-enrolment from

Or discuss it privately at a time to suit you:


Arrange A Meeting With A Local FSA Regulated Independent Financial Advisor At A Time To Suit You

Double dipping: Britain faces second round of recession

Double dipping: Britain faces second round of recession – The UK’s economic forecast is cloudy with little chance of a speedy recovery, as the nation struggles to overcome its double-dip recession. Meanwhile, EU leaders are meeting to come up with a solution to the euro crisis – but seem to be striking out.

Britain’s shrinking economy has left shop owners and everyday workers worried about the country’s future. According to figures released by the UK Office for National Statistics (ONS), the British economy has been shrinking for three consecutive quarters. This is the second time this has happened in four years, putting it in “double-dip” territory for the first time since the 1970s.

Britain has become one of just two G20 nations to face a double-dip recession. Italy is facing the same situation. The results are being felt. throughout Britain.

David Meers has owned and operated a London carpet store for 17 years, but the nation’s crippled economy has left him with no other choice than to let go of more than half his staff.
“I really hate to lay anyone off.I really do. And I think anyone with a decent heart wouldn’t want to put someone. out of work. But if we hadn’t have cut back, everyone would have gone, so I had to do it,” Meers told RT.
But even those who have been fortunate enough to keep their jobs have found themselves no better off than. they were 30 years ago.“The guys actually are working a lot harder for the same money that we were earning in 1980, and as we all know, things have increased a lot in price since then, plus tax and everything, so if it wasn’t for the support of our staff, I think we’d be in a lot of trouble,” Meers said. It has become a survival of the fittest scenario – and many who do manage to survive are barely scraping by.

The outlook is anything but optimistic. In July, economists said to expect a long and arduous recovery. According to The Telegraph, Commerzbank economist Peter Dixon said of the ONS statistics, “Terrible data. Frankly there’s nothing good. that comes out of these numbers at all… The economy looks to be badlyholed below the water line at this stage. It’s a far worse period of activity than we’d expected.” And as shops sell fewer products and workers are faced with decreased job opportunities, citizens are becoming increasingly. unhappy. “This is modern life. people are angry. We’ve seen people rioting in the streets recently because they’re frustrated,” Meers said. But the UK is not alone in facing fears of financial ruin and social unrest. EU member states are also struggling to keep afloat.

Meeting merry-go-round

Leaders from the European Union’s five largest economies are in a merry-go-round of meetings, as they focus their efforts on easing the EU’s troubled financial future. But it seems unlikely that a solution is around the corner. “They’ve been having meetings for years, but they continue to refuse to deal with the fundamental problems which are the imbalances between Europe, far too much debt, and slowing economic growth. And these issues are not all on the table,” financial adviser and wealth manager Marco Pietropoli told RT. Those who hope the meetings will lead to a miracle solution for the Eurozone shouldn’t hold
their breath, according to sociologist Carlos Delclos.“If we’re talking about European society – regular people – I don’t think they have any reason to be optimistic. They haven’t had any reason to be optimistic for months now,” Delclos told RT. And as the leaders put their heads together to find a “cure-all pill” for the euro crisis, many believe a solution unlikely for countries like Greece.

“Greece should have been allowed to leave the euro. They would have had a lot less debt and by now…it’s going to be difficult for the Greek government to impose a further two years of austerity on already high unemployment in Greece…and to impose further austerity may spark further social unrest,” Pietropoli said. Social unrest is a very real fear for Greece, which has been beset by protests since the first round of austerity measures were introduced in 2010

Reproduced from Russia Today j6ig8o

Personal debt: We’ll never pay it off, say one in three

Fewer than one in 10 people over 30 have never owed any money to anyone, researchers found, even when they stripped out mortgages from the picture. Eight in 10 are still indebted, and the average response to a question asking them to rate their financial stability was that it was “fairly bad”.

Mark Pearson from, which carried out the research, said: “Without a mortgage thrown in to the mix, to see that so few people over 30 hadn’t experienced debt was a bit of a shock.

“It’s best to avoid debt at all costs if possible, as what starts as borrowing a few hundred pounds on a credit card can quickly escalate into loans, overdrafts and more. Always be wise when it comes to borrowing and only ever do it if you know you’ll realistically be able to pay the money back.”

The company asked respondents to its survey how long they felt they would owe the money for. Nearly a third (32pc) felt that they would continue to owe it indefinitely, with 27pc suggesting that they would owe it for the foreseeable future.

Those respondents who had adult children themselves were asked if their children were in debt, and nearly half said yes, a third were unsure, and only 23pc could say a firm no.

Recent figures from the Office for National Statistics show that the ratio of consumer debt to disposable income has risen for the first time since 2008, and the Consumer Credit Counselling Service, a charity, suggests that this will get worse in the coming months.

The charity also said that people were increasingly turning to payday loans to fill a gap in their income.