IFAs being re-contracted into Hargreaves Lansdown's Financial Practitioners business on an employee ...
IFAs being re-contracted into Hargreaves Lansdown's Financial Practitioners business on an employee basis will see their earnings cut by an average of 40% according to comments from affected advisers received by IFAonline.
HL says the switch is needed in order to implement a new business model in response to CP166, and that advisers will be incentivised by bonuses on top of salary.
Because the level of incentives will be based on additional sales that cannot be known beforehand, it implies the level of earnings reduction cannot be known.
Danny Cox, HL's head of individual advice says the model of allowing clients to choose whether to pay fees or commissions to HL, which in turn will pay salary and bonuses to the advisers it employs, is a good response to CP166.
"It puts us in prime position to continue in the 'new world order'. The role of fee-based advice is becoming ever more prevalent and it's a change we are happy to make," he says.
Cox says although commissions will be an option, "it makes sense" to shift towards fees.
But the switch in employment status is not necessarily being welcomed by those at the coal face.
"We have to sign the contract or else we are out of a job," says one adviser who contacted IFAonline.
"They are basically sacking us and re-hiring us at lower wages. What they are saying is: 'do the same work as last year, but I will pay you 40% less of what you earned."
For example, under the previous regime an individual making a total gross commission of £100,000 could earn up to £50,000, from which business costs such as running a home office, car, making pension contributions, etc., would be subtracted.
Under the new regime advisers are being offered a base salary of about £20,000 for which they must do £70,000 worth of gross business.
Gross business between £70,000 up to £150,000 gets the adviser a 33% bonus.
This means that the £100,000, which used to be worth £50,000 is now only worth £30,000.
The situation is made worse, one adviser says, by the fact that costs for running home offices cannot be recouped in the same way because of the change in employment status.
There is also the question of how the new contracts fit in respect of the FSA's attempts to ensure that advisers are not pressured to sell, the adviser adds, because those affected in this case will have to sell more to earn the same amount of money as previously.
"The company is linking the change to the issue of commissions, but some of the biggest hitters already charge large fees. The new contract offers commissions or fees, so saying that people are going because of commissions is wrong. There is no change at all."
Cox says that the planned changes to the business should be bedded-in within three to six months' time.
About 30 IFAs are immediately affected, including individuals with up to a decade's experience.
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