The Magic ISA Pot…
A young, recently FPC qualified adviser knocked on a door promptly for his appointment, he knew the prospect, as they had been school pals.
He entered the drab northern lounge, which smelled faintly of stale smoke. The clients, a young married couple with baby were living with his father who, being a widower had welcomed their company.
Alas, it was the lounge that had caused a family argument, the client’s father smoked and had been indulging in the house. Ok he left the lounge window open and he only ever did it late at night after the family were all in bed but it wasn’t good enough, not with a baby in the house.
Our recently FPC qualified young hero started off the conversation with a sublime, positioning question…
“So, what do you want to know?”
Well the clients wanted to know how they could get their own place and fast! After living in a council house for a year they had returned to begin saving for a place of their own, they knew the housing market would soon leave them for dust.
Our hero had only Two funds, the clients plumped for the under performing European Growth Fund, this would give more units for their money and when it went up they would do well, but how much should they put in?
Cash was short for the 21 and 19-year-old family, he had a job selling to factory managers, she was at university. The adviser suggested £50 per month.
£50 per month? That was a lot of money to a young family, roughly translated from fiat money into the more accepted young adult currency of ”beer tokens” it meant the couples only night out per week would be going straight into this pot.
Of course, the couple had some objections; then with his second even more enlightened question, our hero quickly helped them clarify their thoughts “does it smell of smoke in here?”.
Instantly, the couple sub-consciously came to the right decision, and just then the magic savings pot was sold.
The months rolled by and the magic pot grew, 22 months later and the family had their own house. Maybe it was a twist of fate or maybe just a busy schedule but the clients forgot to cancel the Direct Debit and the magic pot kept going in the background, as did our hero.
Later, the family needed a new car for the wife to get around but could they afford it? What if things went wrong?
They turned to the magic pot and it filled them with confidence. Even if the worse happened they could handle a few months car re-payments.
Of course the worse didn’t happen and the magic pot grew.
Later, the family needed a larger house for 2 kids, one with a garden for football would be great!
But what if interest rates rose, what if the bonuses stopped? The dotcom bubble had burst, what did it mean?
Again they turned to the magic pot and it filled them with confidence. It would make up the bonuses if needed. The pot wasn’t needed and it grew.
The client wanted to set up his own business, but how to pay the mortgage? What about the capital? What about the risk? Goodness what about the kids?
They turned to the magic confidence pot and took heart, even if it all went belly up, it could cover them for 6 months whilst he got a new job.
Wise leaders of men know that the magic of saving uproots fear and self-doubt, replacing it with faith and confidence.
Of course this was all thanks to our young adviser, his fervent belief in his product and his invaluable questioning ability.
“In a country well governed, poverty is something to be ashamed of. In a country badly governed, wealth is something to be ashamed of.” Confuscious – 500 BC
The End.
No the author wasn’t the adviser, a younger Gavin Pugh was our hero, but thanks old school friend and trusted adviser for selling it to me.
http://illingworths.co.uk/meettheteam.html
How much did it matter that back then Gav only had 2 funds to sell?
Advisers, you will love or loathe the RDR but who will be ensuring that this generation of young families own magic confidence pots?
If savings are important (and they are), why are we replacing UK advisers with a useless Internet based quango, which makes no contribution at all?
The reason could be below, but only whisper it unless the public hear it….
Maybe its because when advisers don’t sell any products it leaves the public’s money in the rotten banks for the nations favourite fat cats to gamble and speculate with?
We need a judicial review on the RDR, the industry should also begin a campaign for hearts and minds of the public too.
Any thoughts please share…
What a poignant true story, thought you were the adviser till the end.
We need a Judicial Review, RDR is a shambles
This is exactly how I started out. I talked a lot of people into saving into policies and pensions etc. Those people are still clients today some 25 years on and are in a much better shape because of the ‘advice’ I have given them. Yes I have earned well, selling is about convincing people to BUY… when was the last time someone knoecked on your door or telephoned your office and said “I want to start a Pension”… not very often I guess.
You need to send this article to the media and the Treasury as if we Brits dont save then the burden upon the State in later years will be much greater than today.
I am all for Diploma level qualifications and whilst the journey has been far from comfortable, our Industry did need a clean up. However we need to be encouraged to keep SELLING or ‘advising’ which is the new buzz word.
The Lunatics have taken over the Asylum, this is Regulation gone MAD!!!
Not a story you’ll hear under RDR. Judging by the young couples situation at the beginning, they were apprehensive about investing £50 per month. What would happen if they needed to pay an adviser charge too? My guess is that the story would have finished with “I’m sorry I can’t afford to pay” or “I can save without receiving advice”.
Havent you heard everyone in the work place will be saving for retirement through Auto enrolement which will give tehm an excellent life style in retirment becasue a 4% contribution will build up a very large saving pot!! One large enough it will just take them out of poverty and above the Minimum income the government guarantee. 1 – 0 to the government!!
The only way this rdr madness will be dealt with is by impressing upon the governement the devistation that is about to be unleashed upon the savings industry AND that the Government will be blamed in the poll booths at the next election. The FSA have been, and will continue to be, a self serving beaurocracy that is only intent is to taper down the number of advisers to more manageable levels for them to regulate as they are clearly not competent. The client has not been considered as those with under £100k to invest will find fees for correct advice unattractive and will either seek out the cheapest option and probably make costly mistakes or stay with cash which is definately not in their long term interests. Before the election many senior conservatives where aware of the FSA problem and where keen to rectify it but unfortunately Cameron saw fit to exclude them form office and replace them with wet behind the ears chums.
Excellent, Stephen.
Oh Dear!
No-one has commented that, pre RDR but post the 1988 FSA, to advise a client with no savings to place it all in a high risk fund such as a European Growth fund is an automatic mis-sale.
The argument that as the unit price was low “when it went up they would do well” is a complete mis-understanding of “pound cost averaging” which requires a falling price to work its magic. However, that would make the sale even more unsafe. Can you really see this young couple happily reviewing a valuation that shows the fund has fallen in value over the last couple of years?
Finally, even ten or twenty years ago, any adviser presented with £50pm will consider the time required to create a compliant report and a compliant file, close his fact-find, and suggest they open a high interest bank account.
Or go to the pub.
Confuscious??????????? You should be!
I’ve just applied to the FSA to have my permissions removed so that I can shut up shop. I’ve had enough. The Government and the FSA want all investment products to emanate from the banks, offering plain vanilla index tracking products which require little or no advice. They hate anything more imaginative because they assume that a) they’ll be “sold” by commission-hungry salespeople who have no interest in anyone but themselves; b) the products will be risky and expensive, and c) that every consumer is a complete numptie who has no powers of discernment. The younger generation will have to fend for themselves. They’ll get no advice worthy of the name. But the Government and the regulators will feel that they’ve done a good job in getting rid of all those ghastly IFAs who earned a living from commissions.
I’m continuing on a very part-time basis to “promote” unregulated products to appropriate people, but I stick to the rules. I get telephone calls all the time from people trying to sell them to me, who aren’t observing any rules at all!
We inhabit an Alice in Wonderland world in which the ONLY people who don’t have to tell the truth about ANYTHING are our politicians.
Two wrongs do not make a right. The RDR is flawed and so was the good old bad old days of doorstep selling. There is a desperate need for a return to the morality of saving for things and for future needs. This has little to do with RDR and past sales practices but is a fundamental moral and lifestyle matter.
People could be sold to, in the past, because they accepted their future might be improved by accumulating some money over time. But in a society with extensive distrust of pensions and savings plans returns, little leadership by those at the top, poor educational processes and a “want it all now” culture, coupled with an appalling ignorance on many health and financial matters, by many, there are deep-seated problems to be addressed. These are far beyond surface skimming arguments about current regulatory practices and old sales processes
Good luck to you and I would leave you with an ancient old saying – “It is better to be lucky, rather than wealthy or wise” … perhaps that was the case in paying into that old fund but do we really want a system based on such an approach? Sure, the RDR will not solve the savings predicament but neither did the old selling techniques, as we have an awful lot of sold to disgruntled persons, very disappointed with their invest/pension returns and some who did very well. Such is life
If you want to campaign, try arguing to change a world where schools mainly do not teach any real awareness of prudence and financial management and knowledge of basic monetary processes, where most people will never know an adviser, where mortgages are sold without essential critical illness, income and life protection, where we have plenty of bent professionals in other areas but arguments that commission allows ripping off but fees do not, where we have a society that has never really known the concept of service in commercial matters and has lost a lot of its belief and practice of such in even the medical professions, need I go on.
There is a lot to do so stop worrying about old sales practices and RDR issues as these are truly small fry in consideration of the real problems
Believe it or not, RDR is well intentioned. Some would say that the execution is not quite correct but all l I know is that the entrepeneurial spirit will shine through and someone will find a way of delivering financial planning to the masses to save their £50 a month withouth it costing a £300 fee. Strange, but isn’t that what happned before? The real threat is not RDR or the next (Australian) fad that the FSA (under whatever name) want to drive through without bench testing the theory and it’s complete implications, but whether or not the IFA population are ready for the new world and ALL of it’s delivery channels. The mountain is not for moving so climb it or walk around it but don’t try to blow it up!……. and finally…… the real problem is how we find a way of delivering financial services to the masses who cannot afford to pay a fee withouth it costing the earth. Not how we attempt to destroy the regulator and the implications of the regulators descision.
My sentiments exactly
2 rules to improve your wealth:
1) Spend less than you earn
2) Invest to beat inflation
1) takes a saleman
2) takes a train IFA, a fund manager both must supervised by a compliance team and regulated by an authority to make sure they get it right.
I suggest that most consumers go wrong at step 1) and the effect of RDR, Sandler and Stakeholder is that not worth my time to speak to “ordinary” people who need to be persuaded to invest for their future.
The RDR is the FSA’s chocolate teapot. Within months of 2013 it will become readily apparent that the already miserable take-up of products has fallen to new depths and insurer/investment hosue balance sheets and P&L accounts will be in disarray.
The blind faith thoerists, those here today gone tomorrow professional committee sitters and non-exec directroship holders will be off deconstructing another industry while Rome burns in financial services land.
RDR is the best thing to have happened to fund management in the UK since the invention of the unit trust.
What could possibly be less likely to create a magic pot of wealth and confidence than backhander-funded sales of underperforming financial products with excessive fees sold using pressure tactics like doorstop selling.
The issue of how a society allocates resources and makes decisions about that allocation has been with since the birth of our early civilisations and it is as poignant now as ever.
The arguments for and against RDR and fees/commissions essentially misses the point and the big questions keep getting evaded. I suspect this is because we continue to get the politicians that we deserve and we are too easily satisfied with lack of clear policy and longer term strategic vision at the top of our society; the promise of ‘bread and circuses’ appears to enthrall most of us today as it did the citizens of Rome 2000 years ago. And for that, we get the wrong government policies.
As a reasonably well-off financial adviser I would prefer to live in a society where the wealth gap is decreasing, not increasing, and most of us, I suspect would like to live in a world where those fortunate to generate great wealth respond by re-investing in a society not running for the tax havens or ‘clever’ but socially destructive tax planning stategies, and I would like to live in a world where politicians give the electorate really hard long term decisions to consider about the future direction of our country and I would ike to live in a society which considers the security of the vulnerable and less fortunate and preserves our resources and wealth assets for future generations within the framework of a stable sustainable long term economy. In that debate, RDR, fees, commissions are merely symptoms of the problem, not causes.
Completely agree with Michael. It’s easy to look back with rose tinted glasses but how many advisers would get excited at the prospects of arranging a £50 monthly contribution into a unit trust today? And going back to see the client every year free of charge in the hope the client might increase it or take out another product? Great sentiment but completely unviable.
Lets fight back and fight back now as it has gone to far and you are so right we need a judicial review. I have been saying for many years that young families are now the target of the loan sharks, after the gap left by Pru, CIS Pearl etc etc left. Why did they leave because they had products with big charges, well in comparism to ISAs. Well i had a payout when i was 18 and 21 and was delighted, but had the agent not SOLD the plan to my mum and dad i would not have had that money or the car and deposit for house. ARE THESE PEOPLE AT THE FSA BLIND TO THESE FACTS WAKE UP WORLD
Well said, as someone who has been skint more than once, we all need good advisers.
10yrs, yet 10yrs ago there were c. 7,000 funds and now there are 15,000. Big business for advisers and providers.
Product providers and financial advisers have been milking their clients for years, whether their fund makes money or not. Most advisers don’t even know they are doing it because they are so convinced by the providers they rarely analyse what they are doing holistically.
A change is needed
Stephen
Altdough the service you have received meant a lot for you I don’t think you have paid for the advice at the outset. I don’t think that ISAs paid more than 3% commission, so your adviser didn’t receive more than £1.50/month commission.
In my opinion you have benefited for ‘free’ advice from your friend. Probably he knew you are a smart guy and he will make money in the future building a relationship with you but I don’t think he covered his cost at the point of sale.
If he wanted to make a buck he would have sold you a 10 years endowment where the commission would have been a lot higher but that would have been a miss-selling.
The only difference the RDR makes is that you need to discuss your charges with the client and agree them. What’s wrong with that?
The only thing wrong may be that high net worth clients won’t agree with such high charges like before that would subsidize the clients where the adviser would lose money.
In my opinion the batle against RDR is not for the little client saving £50/month. They are push to the front. The battle here is for the high charges the adviser won’t be capable to take from a High Net Worth client. This is all about.
The truth is that HNW clients pay for their advice, no doubt about that as I charge clients ever day. Even the affluential clients pay. What they don’t want to pay is disproportionated amounts with the work involved in giving advice.
This is all so true, but the FSA do not believe these people exist. As far as the FSA is concerned, IFA’s only deal with multi millionaires that are happy to an hourly fee. The FSA is still trying to regulate an industry it doesn’t understand. One by one, the regulators have killed our industry starting with Lautro. The whole basis of financial advice is no longer about assisting clients it is all about how much is charged by an adviser!
Grant
This issue is not just 11 years old, the time elapsed since “N” day that most of us recall. It goes back to the “endowment mis selling” scandal of the early nineties, the pension transfer misselling of the late eighties. When I took my endowment out for the first house purchase I made I used an endowment to repay the loan. By the time the endowment matured 25 years later I used it for school fees because it in no way represented the mortgage type I had at the time.
60% of the british public saved through endowments, MIPs, personal pensions and so on. I doubt whether it is any more than 10% today. Well done both political parties, Lautro, PIA and now the avaricious FSA. The savings culture in the UK, one of the largest in the world, is now a whimpering lamb, lost in an Abbatoir.
No doubt there is much support for a review of the RDR from the Adivser community, however the time for voicing our concerns has long gone. All the Financial Institutions seem ready to accept the proposed changes and I suppose we are upset because firstly it ‘may’ affect our income and secondly, and more relevant to our arguement is the General Public are going to suffer massively through lack of advice.
All the above comments make for a healthy debate, however collectively ‘as Advisers’ we need to come together ‘as one’ and lobby the Government to get our voice heard.
Can I suggest someone drafts a letter that we can all use to send to our MP in an attempt to get the Government to look into this. I do recall the Treasury Select Committee recommended to the FSA that these changes be delayed for a further twelve months, however Mr Pants flatly declined this request.
Leaders lead, sheep follow…. any takers!
I’ve written to my MP, pointing out that her party promised to sort out regulation, but all they’ve done is taken banking off the FSA, changed the name over the door and put a different arrogant “shoot first, ask questions later” sod in place of that “be very afraid” arrogant sod.
From her reply, it’s clear that she doesn’t even understand the problem.
I took specialist legal advice on taking the FSA to JR over grandfathering, as we are the only profession not to be allowed such rights. The advice I was given was the the FSA would throw huge financial resources at me and bankrupt me before it could have a proper hearing.
If nothing else, Parliament must make the FSA accountable.
Correspondence here for you to use as a draft for your MP.
Dear ,
Thank you for your letter of xxx, but I wonder if you may have missed the main points of my concerns, of which the taking of examinations by senior members of my profession is but a very small part. The main parts of my concerns are as follows, not necessarily in order of importance:
The FSA is persisting in continuing with RDR, in spite of the TSC asking them to delay it for a year, until after the EU has declared it’s position (I think on Mifid, but I may have remembered this detail incorrectly).
Members of the Upper Chamber are concerned at the way they feel railroaded on the new financial services legislation – they make amendment and the BoE and/or the Treasury tells them they can’t do that. (Who really runs this country?)
Apart from moving bank regulation away from the FSA, all the Government’s promise to change regulation is a different name over the door at Canary Wharf.
There still is no accountability to anyone by the FSA: witness what it’s former CEO Hector Sants told the TSC!
Insisting that practitioners of many years standing and with no complaints against them sit exams or leave the profession: this at a time when our country needs individuals to take proper professional advice on savings and forward financial planning.
RDR is about much more than exams. Many take the view that it’s an enormously expensive experiment with inadequate cost benefit analysis and little if any benefit to the consumer, whilst regulatory (and insurance/investment industry) costs soar.
Kind regards,
(N.B. you will need to put your home address, so your MP knows you are on his/her patch)
——————————————————————————–
—– Original Message —–
From:
To:
Sent:
Subject: FSA’s Retail Distribution Review (RDR)
Dear xxx,
As a seasoned, experienced Independent Financial Adviser, I am forced by the FSA to take exams by 31/12/2012, even though I’ve more than x years’ experience never had a complaint against my firm in x years’ practice. The alternative is for me to deny my clients of my advice at a time when I am not ready to retire. This is akin to telling the senior partner of a law or accountancy firm that the syllabus has changed since he/she qualified and a re-sit of the new final exams must be done.
We are the ONLY profession where practitioners have not been allowed grandfathering rights.
At a time when the country needs financial advice more than ever, the FSA is forcing many of our profession out.
I read that Mark Garnier has commented at party conference this week – http://www.moneymarketing.co.uk/politics/mark-garnier-fsa-has-made-a-pigs-ear-of-rdr/1059190.article – Isn’t this a case of too little too late? Also I understand that the House of Lords is very unhappy at the way the new Financial Services Act is being railroaded past them. They object and all that the BoE and/or Treasury tells them it has to be that way. “This is not the way we do business,” is one comment attributed to a member of the Lords.
The TSC recommended that RDR be postponed a year, or until the new EU rules come out. The FSA cocked a snook at them.
It is not too late, even now for Parliament to force the FSA to obey its will.
Please do what you can to:
force the FSA to delay RDR
stop the Bank of England and the Treasury bullying the Lords when their Lordships are unhappy about this legislation
actually make some difference to regulation: apart from taking regulation of banks away from the FSA (with very good reason). All that is changing with the FSA is a change in the sign over the door to FCA
making the FSA and its senior staff legally accountable, which they are not at present, not even to Parliament.
When many of my colleagues and I voted Conservative in the last election, a major reason was the promise of regulatory changes. So far all I’ve seen is the FSA ignoring Parliament.
Who runs this country? The FSA? The civil service (who can’t even play with a giant train set effectively), or Parliament?
Kind regards,
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