Are financial advisers that gullible?

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Picture the scene: it’s the strategy day for an investment provider and they are busily coming up with new products to flog.

Phillippa Gee

Phillippa Gee

They propose an investment offering high levels of income (and a risk to match) but camouflaged with some pretty fantastic marketing material. Their concern is how to attract investors? How on earth can they convince the end investor that this high voltage product is actually “safe as houses”?

Ah, but that’s the point: they don’t need to convince the investor – they simply need someone else to spin the lies for them so they can hold their hands up as the innocent party when it all goes wrong. How do they convince someone to do that for them? Is it to come up with a product that actually delivers, that won’t become illiquid and that will provide the level of risk stated by the marketing material? No, don’t be ridiculous. They just offer advisers a commission of 10% and their work is done. (Guest blog continues below)

Well, that is how it appears to me. I see a good proportion of new clients coming to me to help them unravel various investments their previous advisers have set up. This is often a challenging task as not only do you have the financial effects to consider, you also have the emotional impact on the client. For many, they have trusted someone with their financial livelihood and have had that trust completely destroyed, along with their means of retiring, as the products have lost considerable value and in various cases are now completely illiquid.

I find this sickening. That an adviser can hold the trust given them by the client in such contempt (that they feel no responsibility for their actions) is despicable and how can the investment provider, coming up with this sort of nonsense, sleep at night? It’s just wrong.

Shame on you.

_______

Philippa Gee is managing director of Philippa Gee Wealth Management.

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Readers' comments (19)

  • Excellent blog, Philippa. We see far too many examples of 'buck passing' when it comes to the responsibility for ensuring suitability. Advisers should never rely on marketing material to justify their investment recommendations.

    I think the route of the problem comes from the distinct absence of a documented investment philosophy, advice process and fund selection process at many advisory firms. Putting these in place can help avoid many of the difficulties associated with recommending opaque and dangerous investment funds.

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  • I heard Frank Skinner, the comedian, on Desert Island Discs recently. He admitted that he'd lost several £m in the credit crunch, because he invested the whole amount into guaranteed investments from AIG.

    The adviser - his private bank!

    I think this proves your point....

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  • I think you will find that anyone expecting to be around post RDR agreeing with you...some of us have been saying this for a very long time...if its too good to be true.... yet we all end up paying in the end.

    Sad that you think all advisers are alike though.

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  • I agree - excellent article Phillipa. In my view, it comes down to a question of understanding. I get the impression that many advisers do not actually have a fundamental grasp of the products they are selling. And this applies as much to "historic" products such as endowment policies, personal pensions plans being used to opt out of DB schemes as it does to the more recent structured products and ETFs.

    Running the numbers and a cold assessment of the risks would make it clear that many products simply do not stack up.

    And if the adviser does not have a deep and proper understanding of the product, how on earth can he communicate it to the client.

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  • I really agree wholeheartedly, although I have to say I have rarely come across such malpractice and have only occasionally come across less extreme examples of lazy, self-interested advice being given. Hopefully RDR will put an end to such practices.
    However, I have to admit to mixed feelings about articles like this. Whilst written with the best of intentions, I wonder if this does more harm than good to the profession. A majority of advisers try to ensure that advice is appropriate and untainted by commission levels. Indeed, many give free advice on a daily basis to their loyal clients. Nobody writes about this!

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  • No Phillipa, we are not that gullible. It may be a few and mainly the banks and larger orgs that spoil it for the rest. We treat our clients as we would our own friends and family. With regulations so tight we make sure that the client understands the investment or we don't do it. Yet we all still pay for the compensation for other peoples mistakes even though we have never sold any of those 'bad' products such as keydata. Please don't generalize and put IFA's into the same box and financial advisers which include banks etc. We are the good guys/gals acting for the best interest of the our clients.

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  • The Providers are as much to blame, as the unscrupulous advisers. By offering the ridiculously high levels of commission, they are endorsing the action of advisers taking it. It's appalling, yet here we are 13 mths from RDR, and it's still on offer..... there's still advisers being offered and taking 8% plus 1% trail for gods sake....Shame on those Providers still offering it. It 's the equivalent of a Getaway driver pleading his innocence, after the bank heist, as he was ''only driving the car''

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  • I stand corrected and completely understand the comments. With hindsight my blog should have been entitled "Are SOME advisers that gullible?" I appreciate how many there are doing the very best for their clients, but as ever the actions of a few affect us all. Thank you all for your feedback.

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  • What's new ? I dont think many good advisers get embroiled in matters like this so I was wondering why you have brought it out on your blog ?

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  • Anyone who accepts an insurers marketing product literature as fact shouldn't be allowed out on their own. Why is this being discussed now? Surely there are only 2 types of adviser remaining in the industry those who do the best for their clients and those who do their best for themselves. The later I am sure will be more than ready come RDR+1.

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  • Well said Phillippa.

    Who was it that stuffed their balance sheets and client portfolios with unchecked securitised US mortgages - not IFA's - funny how even Fortune & Bird new this in October 2007

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  • Well, sorry to say until the public start paying for advice they deserve all they get.

    One of our clients (reformed) got stung for 8.5% (£8,500) commission at the Newcastle B. Soc. because he would not pay our £1,500 fee because they "did not charge".

    Lets please stop pointing the finger in the adviser room and see the elephant in the room

    "gullible public" and greedy organisations/banks. been the same way for 30 years and will not change!

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  • I am not sure what this blog is trying to achieve? Are you pointing the finger at advisers, investment companies, both, anyone, everyone.....? My cancern is that it has no factual base. Perhaps it would have been better to have been more specific/ factual. Scale of the problem, by whom etc. I have rarely come across plans that are offering the adviser 10% and that have been sold by advisers just for commission?. My real concern is that this simply and cruedly stereotypes advisers all with the same brush. IFA, tied, multi tied etc. What is client meant to think? :-(

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  • The line I have always taken with any investment is quite simply would I put my own money into it? If the answer is no, then why ever would I put any clients money into it, irrespective on whatever commission rate was on offer?
    Most clients want us firstly to protect their funds, and then to look to grow them, not the other way around. An investment is either a good thing for the client, or not, but the commission should be largely irrelevant, other than perhaps a guide to the morals of the provider.
    Wasn't the maximum commissions agreement a useful tool for stopping this in the past?

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  • Unfortunately the "gullible public" is a major problem.

    Those at most risk, the older half of the silver generation are a silent generation who hold people in some form of authority in high regard. And here it's not so easy to identify the wolf in sheep's clothing. Hopefully the RDR will.

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  • If the FSA daft definition if Independent is taken seriously there can only be more examples of gullible advice. Advisers are being positively encouraged to dabble or if they do specialise give up using the word "Independent". I doubt if a little gap filling will really be enough.

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  • It does strike me as bizarre that a previous poster is suggesting that literature provided by the Company running an investment, an FSA Company at that, can not be trusted.

    I aslo agree that the blog is vague and non-specific and doesnt really say anything!

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  • We’ve recently taken on a graduate trainee. With a distinction in her Economics MA she’s an excellent researcher so as an introduction to our industry I have had her working on a project to identify current best practice in private client investment management before she starts her MCSI after Christmas.

    The more she’s researched the more apparent it becomes that the entire fund management industry is a triumph of hope over experience. She asked me incredulously the other morning ‘why does anyone ever chose an active manager?’

    Given the high levels of actively managed funds we are all recommending I’d suggest that, yes, financial advisers are that gullible! And I include myself in that cohort….

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  • This bloke came round and sold me some magic beans this afternoon. Only a grand each. Bargain.

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