Informed Choice financial planner Andrew Neligan on why he turned down some £21,000 commission after delivering retirement advice to one client.
I have recently completed some retirement advice work for a client. Nothing exceptional in that, it is something I do regularly.
However, what may surprise some people is that I could have earned £21,000 from the advice but chose not to. And, I will do so again.
£21,000 is what I could have earned as a commission payment from a product provider for recommending a particular product.
This is not an exceptional level of commission; it is standard with all providers and products they offer. My issue with this means of remuneration for advice is:
- it is not commensurate to the work required or advice provided.
- it motivates advice centred around the adviser not centred around the client.
£21,000 is the salary many teachers and nurses receive in a year let alone in the short period of time it would take to advise and implement this type of investment advice.
How can this be seen to provide any value?
The particular client approached me for advice after seeing two other advisers. Both offered similar but slightly different advice and he wanted an independent third opinion to help him decide.
Knowing that we charged fees the client was confident that any advice we gave was centred around him and not any financial reward.
As a result of our client focused Financial Planning process not only were we able to advise the client on what type of product was most appropriate for his circumstances we were also able to demonstrate that he did not need to expose himself to investment risk with as much capital as he thought.
In fact, he could achieve his retirement goals by investing only 40% of what he expected and leave the balance as savings.
I am recounting this story not be to be self-righteous but to demonstrate how in the financial services industry there are too many occurrences of ‘advice' based on a sale of a product as opposed to a client's needs.
Fortunately the FSA is banning commission from 2013 but there is still opportunity for the salesman to earn a quick buck from clients who are not familiar with the Financial Services world (why would they be if they were not in the industry themselves?).
Don't be fooled by the ‘adviser' who tells you commission is free either. It isn't, you pay through higher product charges; product providers are not that charitable.
We all want to make enough money to fulfil our personal goals and ambitions and some people's desire to make money burns brighter than others. This is not, in itself, a bad thing; entrepreneurial flair and endeavour are important to a growing economy. However, I do take exception to money that is made unjustly at expense of others.
Incidentally, the adviser who was to take £21,000 was actually going to receive £42,000 until the client challenged him on that and he immediately agreed to halve the commission.
Andrew Neligan is a Chartered and Certified Financial Planner at Informed Choice
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