Ongoing Financial Advice...what's reasonable and fair?

[Groat]

Is there an acceptable definition of what constitutes 'advice' and what constitutes 'planning'? Where does one begin and another end?
Would court (perish the thought) accept that what Nik does at IM isn't 'advice' because he calls it 'planning'?

Personally I'd have thought 'planning' is a form of 'advice' and that the two are very hard - erstwhile impossible - to separate, especially if the aim of the 'planning' exercise is to remove the requirement for 'advice' because it supersedes it and particularly can save any necessity for expenditure on an 'adviser' by the nature of this 'planning'.

Hmm I could see some issues popping out there with he wrong silks in the wrong court.

[JulianPH]

Groat said:

Is there an acceptable definition of what constitutes 'advice' and what constitutes 'planning'? Where does one begin and another end?
Would court (perish the thought) accept that what Nik does at IM isn't 'advice' because he calls it 'planning'?

Personally I'd have thought 'planning' is a form of 'advice' and that the two are very hard - erstwhile impossible - to separate, especially if the aim of the 'planning' exercise is to remove the requirement for 'advice' because it supersedes it and particularly can save any necessity for expenditure on an 'adviser' by the nature of this 'planning'.

Hmm I could see some issues popping out there with he wrong silks in the wrong court.

Hi mate, the FCA are quite specific:

https://www.fca.org.uk/consumers/understanding-adv...

This one of the reasons why our Private Client Managers are all qualified and experienced financial advisers in their own right (just not in their capacity with us). They know where the boundaries sit.

[Groat]

JulianPH said:

Hi mate, the FCA are quite specific:

https://www.fca.org.uk/consumers/understanding-adv...

This one of the reasons why our Private Client Managers are all qualified and experienced financial advisers in their own right (just not in their capacity with us). They know where the boundaries sit.

Ah yes, that separates 'advice' from 'guidance'. But it makes no mention of 'planning'. So is a 'planner' giving guidance or giving advice? Or both; or something in between ?

[Mr Pointy]

Guidance = "buy lots of cheap flats & rent them out"

Advice = "Buy THIS cheap flat & rent it out" (complete with Rightmove link)

[bitchstewie]

JulianPH said:

You could claim if the advice given was not correct in light of your personal circumstances.

So if I recommend investments that are either too high risk or indeed to low risk given the information I collected from you you could have a claim (which, indecently is why many financial advisers will often steer you towards a balanced fund/portfolio!).

If I recommend you move away from something that was more suitable for you than what I recommended you could have a claim,..

If I failed to include in my recommendation something that could be more suitable for you then you could have a claim.

If I failed to gather enough information to make a fully informed recommendation then this could give rise to a claim.

Finally, if I recommend you invest in a steaming pile off stty mini-bonds you are very likely to have a claim, but probably not at me as I will have put the advice company into administration and walked into the sunset. You will most likely be left with a maximum £85k FSCS compensation claim, even if you lost £1m.

However, if my report gives specific reasons why I did any of the above and you sign to accept this, then you may fail in making a claim in all but the most serious of incidents.

So, the bottom line is that if I collect the right information, recommend an investment in line with your risk/reward parameter and don't cause you an unnecessary tax loss (basically, the absolute basics) then you have no real chance of making a claim against me.

It also does not matter if my recommendation is very expensive, nor if it loses you money.

Basically, if I got my team to put all of the results from their financial planning into a fact find, produced a report (using cheap 3rd party software) recommending one of our IM Optimum Portfolios (this report will auto-generate all the disclaimers and tick all the right boxes) then my financial planning has now become regulated financial advice, but you have virtually zero chance of every being able to claim against me for it.

Obviously I have to check back with you every year to make sure nothing has changed, but that's great because if it has I have the chance to charge you 3% again for a new recommendation!

Regarding Woodford, then if I have been taking 1% a year to monitor the ongoing suitability of your investments and failed to spot that he had completely changed his investment approach and turned the fund into a much higher level of risk, then I believe you should be able to make a claim, but I have not heard of anyone being successful in doing this yet.

So I do question this additional "protection" from regulated financial advice as you have to be a spectacularly stupid financial adviser to put yourself in a position whereby you open to such a claim.

Having said that, people win claims against financial advisers all the time. Make of that what you may.

Julian thanks, appreciate you taking the time to write all of that

I know I've mentioned before but having gone in a little over a year from knowing literally fk all to thinking I now know a reasonable amount it's certainly interesting getting some inside perspectives from both camps on the pros and cons of paying for what I'd loosely term "product" advice from what I'd loosely term "structuring your finances sensible" advice.

I do take the points raised though that I've just used the word "advice" without really thinking about it

[Groat]

Mr Pointy said:

Guidance = "buy lots of cheap flats & rent them out"

Advice = "Buy THIS cheap flat & rent it out" (complete with Rightmove link)

and Planning = ? ......perhaps HOW we do this?

[JulianPH]

My dear Groat,

You are missing the points that have been very well laid out and presented to you!

Information & guidance is what financial planning is made of. A recommendation to buy a specific product is not information or guidance, it is advice (and regulated advice, in this context).

A recommendation you save tax buy using an ISA or pension is not "regulated advice". It is simply the provision of information and guidance formed after a quarter of a century (others, not me) of experience and qualifications!

The problem is with the generic use of the word "advice" and the legal use of the same word.

Successive regulators have confused matters by taking an everyday word and giving a legal definition.

I had a beer this afternoon with a mate I've known since school. He asked me several times for my "advice" on things.

I could give him all sorts of advice, but much of it had to be labelled "information and guidance", because of this.

If the Regulator had just drawn the distinction between "advice" (in the usual - generic - sense of the word) and "Regulated Financial Advice" (the legal sense of the word/term) then everyone could have got on a lot better.

Rant over!

[Groat]

Hmmmmm. I think I may have (at least half) a grasp of it.

Crafting a plan for someone (planning) and informing them on how it works (information) and on how they could implement it (guidance) isn't "advice" - not in the Regulated Advice sense - until an actual product is suggested. Then it becomes Regulated Advice!!

Am I right!

By the way, Angie Woods (Private Eye for financial services) had this to say recently about some of the principal regulators:

https://pension-life.com/action-fraud-biggest-frau...

Dunno how accurate she is, but at least she's funny in a kind of wacky old bat way

Sad to hear there are so many PI claims being made. No doubt the vast majority of them relate to the product supplied rather than the plan, which may be why the regulatory definition of advice appears to centre on product as opposed to information and guidance.

[JulianPH]

Groat said:

Hmmmmm. I think I may have (at least half) a grasp of it.

Crafting a plan for someone (planning) and informing them on how it works (information) and on how they could implement it (guidance) isn't "advice" - not in the Regulated Advice sense - until an actual product is suggested. Then it becomes Regulated Advice!!

Am I right!

[Groat]

Now I can die happy

[JulianPH]

Groat said:

Now I can die happy

Hold on in there mate!

[JulianPH]

bhstewie said:

Julian thanks, appreciate you taking the time to write all of that

I know I've mentioned before but having gone in a little over a year from knowing literally fk all to thinking I now know a reasonable amount it's certainly interesting getting some inside perspectives from both camps on the pros and cons of paying for what I'd loosely term "product" advice from what I'd loosely term "structuring your finances sensible" advice.

I do take the points raised though that I've just used the word "advice" without really thinking about it

No problem! Sorry, I missed replying to this yesterday but you have hit the nail on the head in summing this up.

IM offers the "structuring your finances sensible" advice.

That is to say we do everything you would expect of a financial adviser, just stopping short of actually telling you which products to buy/sell.

People call this many things, "information & guidance", "financial planning", "holistic financial advice", etc.

Basically though, it is the provision of a great deal of common sense - provided objectively by someone who is highly qualified and experienced in such matters.

Cheers!

[Groat]

JulianPH said:

......, just stopping short of actually telling you which products to buy/sell.

Not even teeny weeny hinting???

[bitchstewie]

JulianPH said:

No problem! Sorry, I missed replying to this yesterday but you have hit the nail on the head in summing this up.

IM offers the "structuring your finances sensible" advice.

That is to say we do everything you would expect of a financial adviser, just stopping short of actually telling you which products to buy/sell.

People call this many things, "information & guidance", "financial planning", "holistic financial advice", etc.

Basically though, it is the provision of a great deal of common sense - provided objectively by someone who is highly qualified and experienced in such matters.

Cheers!

It does highlight what seems like a slight absurdity of the wording used in the rules.

This isn't intended as a criticism as you don't make the rules, but it does seem a little odd that I can be sitting in the IM office sipping tea from an IM mug speaking to an IM employee but none of what they say should be taken as "advice" nor are they trying to suggest which product(s) I should buy.

Weird rules

[JulianPH]

Groat said:

JulianPH said:

......, just stopping short of actually telling you which products to buy/sell.

Not even teeny weeny hinting???

No. That would be a value judgement and therefore be classed as advice.

In reality it is quite simple. If someone wants to manage their own investments we can find out their strategy (trade frequently, trade occasionally, or buy and hold) and let them know which platforms are going to be the most price competitive for each strategy. This is simply informed information, not advice.

We could never even hint as to which funds/stocks they should invest in though. That is advice.

Equally, if they want us to manage their money for them we could not recommend which portfolio(s) to invest in. We can explain the differences between them, but not go any further than this.

Fortunately, people seeking to grow their capital usually come to their own conclusion that our growth portfolio is designed to do just this. People looking for income also manage to get their head around the fact out income portfolio is designed to provide just his. Incredibly people seeking a mixture of the two manage without any assistance to understand that our growth & income portfolio may be what they are after!

In the same respect, people who are cautious miraculously identify our cautious portfolio as having some merit and those who are are seeking the potential for a higher return than cash, but who are quite defensive, tend to gravitate towards our defensive portfolio.

Strangely, none of these people feel compelled to pay us 3% upfront and 1% a year for us to work this out on their behalf!!!

BTW, anyone who is unsure can use our target dated portfolios, which manage the risk/reward levels for them in line with their current age and what they wish to do with their money at their chosen future target date.

A good analogy for you might be to compare this to BTL. If this was regulated in the same way as other investments you could explain people how to do this, highlight the pros and cons of each approach, advise on how best to mitigate tax and reduce costs (now and in the future) and inform on the growth/yield difference between studio flats in one area and family homes in another. You just could not tell them which properties they should actually invest buy.

[JulianPH]

bhstewie said:

It does highlight what seems like a slight absurdity of the wording used in the rules.

This isn't intended as a criticism as you don't make the rules, but it does seem a little odd that I can be sitting in the IM office sipping tea from an IM mug speaking to an IM employee but none of what they say should be taken as "advice" nor are they trying to suggest which product(s) I should buy.

Weird rules

You are completely correct.

As I have said before, the problem stems from the regulator (currently the FCA) taking a very general, common and generic word (advice) and giving it a legal definition that causes confusion amongst the vast majority of people (if not all people).

Had they simply came up with the concept of terming this activity "Regulated Financial Advice" and left the word advice to continue to have its own everyday meaning, then I think most people would have a far clearer understanding of the differences.

As it is, the generic term is now having to be redefined (in this context) to contrast/distance it from the regulatory hijack (when the situation should be the exact opposite).

We have to use words such as information, guidance, support and planning to replace the everyday word "advice", for fear of being deemed to have breached the rules.

It is nonsensical. IM holds some of the hardest permissions achievable from the FCA (such as being able to hold client money, control client money, safeguard and administrate client assets) - these are completely out of reach for most financial advisers - but we can't utter the word advice when assisting you, for fear that you conclude this is Regulated Financial Advice (a personal, product related, recommendation to buy/sell something).

So yes, you can sit in an IM office, drinking tea from an IM mug whilst speaking to an IM employee who is giving you what everyone in the country would consider to be advice. And it is advice, let's be frank. It is just not product specific recommendations (or judgement calls) to buy/sell something (which is regulated financial advice).

The fact is that 99% of financial advice (I am using the word "advice" in its everyday context here) is not an FCA regulated activity. It is the background work that only someone with the necessary qualifications and experience can conduct before even considering any recommendation to buy or sell a product/investment (the regulated activity).

This is what we offer, only without the 3% initial and 1% a year advice fees. Because whilst we give you "advice", it is not 'Advice".

If anyone from the FCA is reading this, please give some consideration to the fact that "advice" has many meanings and "Regulated Financial Advice" has few.

Perhaps it would be worthwhile to define accordingly, rather than try and fit all the square pegs in the round holes...

(Not calling you square bhstewie, I am sure you are ultra cool ).

[GingerMunky]

P.Griffin said:

I'm pretty happy with the performance and the advice I have been given, but I'm paying 1%p.a. to the adviser (bi-annual reviews) . Including fund and platform charges, this comes to just over 2% p.a. I no longer have to pay one off charges on investments, but every % of yearly charges eats into the growth. With the markets looking to flat line, if not come off a little in the next few years, I'm curious to know if what i'm paying is reasonable. I know there will be many variables but I'd be interested to know your thoughts as answers online are so vague. Cheers

If the markets are going to flat line and your circumstance aren't going to change, then maybe don't take the reviews for the next 2 years and therefore you don't need to pay the 1% adviser fee. You can ask for your investments to be untied from an adviser and any trail paid to yourself.

Don't forget the advisor gets 1% if you have £200k portfolio or £400k. Which is insane, as he gets twice as much money for the same thing. Add he still gets his fees even if his advice results in your investments going down, crazy! Can't think of another industry when this works but hey the advisers 4x4, big house and yacht don't pay for themselves

[JulianPH]

GingerMunky said:

If the markets are going to flat line and your circumstance aren't going to change, then maybe don't take the reviews for the next 2 years and therefore you don't need to pay the 1% adviser fee. You can ask for your investments to be untied from an adviser and any trail paid to yourself.

Don't forget the advisor gets 1% if you have £200k portfolio or £400k. Which is insane, as he gets twice as much money for the same thing. Add he still gets his fees even if his advice results in your investments going down, crazy! Can't think of another industry when this works but hey the advisers 4x4, big house and yacht don't pay for themselves

Unfortunately it is not as simply as not taking the reviews and therefore not needing to pay the 1% adviser fee.

This fee will have been set up directly with the investment company/platform and can't be paid to you.

Also, some advisers use platforms or investment managers that charge you extra if you don't have an adviser in place.

Even where you could remove the adviser fee, when you do want to review things your adviser is not going to be inclined to deal with you again (or at best make sure they levy a charge that recovers their lost fees and probably the loss of future fees in case you do this again).

If you have agreed a fee structure with an adviser I think you need to either stick with it (assuming they are providing ongoing value) or move somewhere else (if their value is not measurable in a meaningful way) where you don't have to pay adviser fees.