/ Money

Financial advisers should quit if they can’t meet deadline

Business man asleep by clock

Reforms to the financial advice market come in at the end of next year, and yet there are suggestions to delay by another year. My message to financial advisers? If you can’t meet the deadline, get out of the industry.

Last year I completed the current minimum qualification for financial advisers, the Certificate in Financial Planning.

It has been useful for my job here in the Money Research team at Which?, but it’s equivalent to an A-level – certainly not a good enough qualification for financial advisers giving consumers life-changing advice.

Qualifications give consumers confidence

And that’s one of the core ideas behind the Retail Distribution Review (RDR), which will raise the minimum qualification level for advisers and reform the way they are paid from January 2013. This can only be a good thing. Indeed, the best advisers are already qualified way beyond the new minimum.

Qualifications give confidence to the individual consumer that they are dealing with a professional with proven skills. If I paid a builder to put up an extension for me, I would expect him to hold a recognised qualification and have the right tools to hand. I wouldn’t expect him to turn up with an A-level in woodwork and a bucket of Sticklebricks.

I’m putting my money where my mouth is and am currently taking the new Diploma in Regulated Financial Planning. It’s a QCF Level 4 qualification – broadly equivalent to the first year of a degree and the new minimum under RDR.

What exactly is financial advice?

The early signs aren’t altogether good though. In the study notes from the Chartered Institute of Insurance (CII) there is a section called ‘What is financial advice?’. The answer? ‘Financial advice is when a professional adviser assesses a client’s personal circumstances and recommends financial products that are suitable for them.’

No, it isn’t. Just this one sentence illustrates how some parts of the industry still don’t get it. Financial advice under RDR is no longer about flogging consumers products. It’s about ditching the old sales-driven focus in favour of high-quality advice that’s focused on client needs. Sometimes this involves selling nothing at all.

Financial advisers who cannot meet the new rules by the end of 2012 shouldn’t look for an extension to the implementation of RDR. They should look for a new career.

IFABlogger says:
20 July 2011

You really know don’t know what you’re talking about. Another ill informed idiot.

Hi there, please take note of our commenting guidelines – we promote healthy debate and don’t tolerate abusive or harassing comments.

Your comment would be much more useful to others if you explained what you mean rather than taking a quick pop.

Stuart says:
20 July 2011

To carry on your analogy, many of the very best builders have no qualifications at all – just well skilled, experienced individuals with good reputations. No one hires a builder on the basis of their certificates and taking life-changing financial advice from someone with little or no experience but all the right exam passes would be just as stupid – whether they work for Which or not.

Ian Savell says:
4 August 2011

A very late entry to this conversation, but is it really true that the best builders have no qualifications? I wouldn’t touch one with a ten foot scaffold pole. Building is a highly regulated industry and I’d want to see evidence that those regulations are fully understood – just as I would in an IFA. My experience of long serving no-qualification IFAs is that they are no better than used car salesmen.

What other professionals have no qualifications? Actually that would be me – there are no national standards for software developers. And I’m very careful about who I recruit!

PWDM says:
22 July 2011

IFAs, like most other serious professionals, should also undergo regular CPD particularly in the current fast changing financial environment.
In addition the RDR is introducing new regulations regarding commission and fees; these regulations are very much in the interests of consumers.

Adam says:
28 July 2011

I am an advocate of what RDR is trying to achieve i.e., a drive toward professionalism – fee-based advice from highly qualified advisers

However, I am very concerned for consumers over the next 18 months. RDR will drive a lot of advisers from the market. That means if you as a consumer select an adviser now who is not RDR-ready, you run a risk they won’t be here in 18 months. Worse, you could be victim of an anticipated mis-selling spree among (likely a minority of) advisers who plan to leave the industry.

Completely agree with Martin’s last comment – the ideal adviser will be well qualified, fee-based and recommended by their clients. Which is why I quit the banks to set up http://www.vouchedfor.co.uk – a website that features IFAs who are well qualified, fee-based and recommended by their clients!

I am an IFA and well on my way to level 4, however my concern is that I have a lot of what I call bread and butter clients who work and may or may not have a mortgage and do not have a lot of disposable income, do not have a lot of savings or surplus money to invest in pensions or savings. These clients still need to be advised on small pension top ups, regular premium savings either via ISA or tax exempt savings etc, these clients will not want nor have the ability to pay me fees. In this case they will either have to take it on themselves and invest without advice or go to their bank which will give money to the very people ho have created a great deal of the financial problems we are in now. I will have to change a lot of my client bank profile as the very clients who I have advised modest pensions and savings, over the last 18 years, who I count a lot of them as good friends, who account for around 95% of my client bank, will not sustain my business. I also read the previous comment ref sometimes financial advice may in effect end with no investment recommendations, this is all well and good but if I spend time with a client at a meeting, then go away and build a recommendation package for the client, that he then says “great but I dont want to do what you say”, is he going to pay me for what I have done. This will be exactly the case for the clients who are not high net worth clients, who have paid fees for years, also the example you gave of £100000 is correct you will earn an high level of commission for that that I would either rebate part of the commission back to the client or let them pay me a fee and rebate the full amount. But what about say an ISA investment, I tell my clients that when doing an ISA this would be more cost effective for me to take commission as this would generate around £200, it would take me around 8 hours minimum to submit the work when you take into acocunt time spent with the client and also the paperwork that needs to be done. I should in effect charge over a £1000 if I were to work at an average hourly rate. I effectively loose money on this work, because I know the client may invest more in the future or I may receive a good client referral, this I can afford to do as future possible commission may make up for the money lost on the ISA. This I will not be able to do post RDR, in effect it will create a group of people that will be left with no financial advisors and we will all be fighting for the high net worth clients, who will pay fees and sustain my business. I have no problem with qualifications at all and welcome these, although I feel that once I have got these, I still may not be able to survive post RDR and may well have to use the qualifactions to find another job!

Puzzled says:
14 August 2011

But exactly what financial advice can we expect. My present IFA tells me that he can’t advise me on individual investments because he is not covered by professional indemnity – I am now really puzzled by what it is that he thinks he has to offer.