Representative APR 2120 percent, financial adviser, you are having a laugh?

So Payday loans companies employ Financial Advisers, what next?

The following less than grammatically perfect post appeared in our LinkedIn group last week trying to start a discussion, it was taken down and a request sent not to post again.

“Payday loans Direct Deposit is specialised in arranging range of cash include a payday loans 1 hours, quick loans same day, debit card payday loans and payday loans for bad credit. Apply now and get cash deposited directly into your account today.


Financial Adviser Payday Loans Direct Deposit

December 2012 – Present (9 months)London, United Kingdom

Hello I am Greg Wadel from London UK. I am Financial Services Adviser. Arrange Services for Loans. All UK people apply with us and get cash need it same day hassle free. more information visit @

Financial Adviser

Payday Loans Direct Deposit

April 2012 – Present (1 year 5 months)

Hello I am Greg Wadel from London UK.I am Financial Services Adviser. Arrange a Services for Loans. All UK people apply with us and get cash need it same day hassle free. more information visit @

Payday loans are a creeping cancer in our society, money lending at extreme cost, in this case 2120% APR, to the most vulnerable, needy and less well off in society. It is an industry that is barely regulated, in this case solely by the OFT.

The Finance and Leasing Association (FLA), to whom one payday loan firm is affiliated, can also help to deal with complaints against that firm. Although of course this does not stop complaints from the ‘ripped off’ from any payday lender source going to the FOS first should the ‘consumer’ prefer.

This firm does not appear to be a lender, it says it is not a broker and there seems little reference about where to complain or who regulates them.

Given the workload of the FOS I was surprised to hear that this service, along with payday lenders (I guess that ‘service’ is the correct description) are not FCA regulated. This firm’s particular service does not appear to be on anyone’s radar.

It is even more alarming in a post RDR world that those working for such firms describe themselves as “Financial Adviser or Financial Services advisers”!

Greg Wadel is not alone. Here is a link to another who refer to themselves as a ‘Financial Adviser’.- someone called Raynor Plank who works at Fast Payday Loans

This is clearly blurring the lines and should be looked at very quickly.

Financial advisers are having a bad enough time in the reputation department being visited upon them by the regulator without this crude attempt at ‘passing off’ appearing from the ether.

It beggars belief that the FCA has not ingested firms operating in this fiscal ‘Wild West’ for regulation.

Clearly nothing has been learned and it is only when the thousands of consumers who take advantage of such services start to complain in volumes akin to PPI will the question be asked; “Why were these firms not regulated by the FCA”? And, why are we as an industry, paying for their mistakes?

As American as Mom, Apple Pie and Baseball

Despite apple pie not being an American invention (the history of the good old apple pie goes back a very long way indeed) it is a phrase often heard to describe something that is unique to the culture and society you live and work in, illustrating principles or values with which few disagree.

They say that in democracies, the people get the governments they deserve. Is it now the case that in financial services, regulation has delivered the outcome consumers deserve?

The following were a selection of recent trade press headlines and I am fast beginning to despair about the image that this industry has. Who is responsible for that, does FCA regulation wish to see the death of the smaller adviser firm and in turn the demise of itself as nobody will be left to pay the fees?

            Martin Wheatley: Judgment-based regulation is here to stay

            Martin Wheatley: FCA is a ‘very different animal’

            Wheatley: Structured products are like ‘spread bets on steroids’

            FCA chief Martin Wheatley warns of higher regulatory costs 

            MM Wheatley interview: Bad consumer outcomes will see RDR revisited

            FSA reveals its latest executive pay and bonuses

            Advisers need to project positive image

            Complaints Commissioner rebukes FSA for withholding information

AMI boss Robert Sinclair is on record as saying that “we need a new deal where the FCA commits to no more money.  We also need them to consider where they really should be directing their attention.  

The bad in the industry need to be removed but the time has come for the regulator to consider the impact of statements like those above on consumers and those they regulate, in particular small adviser businesses.

As Sinclair said “We need recognition that most intermediaries live in the communities they work in. They advise people they see at school, in their pub, at the sports club and in the supermarket every week.  They are not out to do bad things to their neighbours”.  

They do routinely act in the customers’ best interests.  We need a regulator who can incorporate that into their risk models and factor it into their work. Finally, we need a new contract where they operate within a constrained budget by really addressing the real risks, not imagined one’s”.

The UK financial services industry is unique to the culture and society we live and work in, and financial advisers in a post RDR world as well as the pre, continue to illustrate the very best of principles and values with which few disagree, few that is except the regulator?

It is time we as an industry shouted about it too. And it is high time the FCA realised that regulation does have a cost but that cost is in lost businesses, lost opportunity and lost consumer confidence.


Named and shamed

Listening to recent reports, we hear that unless surgeons and consultants make public the ‘death rate’ results of their labours, they will be named and shamed.

This seems to be a developing trend in the UK these days, a modern day version of ‘tar and feathering’ or ‘branding’ by way of a letter to indicate the crime committed.

Society in the UK has fallen into a pit of self-righteous indignation where unintentional failure is now seen as a consumer crime, a detriment punishable by a compensatory and humiliation action. Strangely, those championing such a course of action see that it should apply to everyone else except those who do the ‘naming and shaming’.

How very strange.

No longer do we live in a world of ‘shite sometimes happens’. In our industry, every failure, underperformance or mistake is looked at as a compensation opportunity and if the miscreant does not prostrate themselves at the altar of the consumer or regulator, they can expect the worst.

Who actually decides who should be named and shamed? Is it governments, politicians, civil servants, regulators, after all, often no law has been broken and it is historically frequently the case that this cross section of society is more responsible than anyone else for failure?

Well in ‘Regulation Street” it is the FCA and the FOS who do the N&S-ing that is now being seen, linked with big fines, as the preferred method of getting firms to comply and some may see no issue with that.

The FCA hit the deck running on April 1st kicking off its reign by publishing the latest “most-complained” list of financial firms for the second half of 2012.

We should not be too surprised that the top 5 are all banks- Barclays comes top of the ‘naughty step’ with 414,302 complaints in the second half of 2012, Lloyds, Bank of Scotland, MNBA, Santander follow behind.

I cannot see any signs of heads hung in shame as a result, can you?

In some extreme cases of ‘N&S-ing’ it seems very appropriate but with large institutions what is the point? Some Barclays shareholders may be concerned as may some customers but will it stop them investing in them or banking with them?

But if, as a society, we are travelling on a name and shame roadway those “casting the first stone” should not be exempt.

If ‘N&S-ing’ is to work it should be fair in who is “N&S’d’ and I suspect that many advisers would see that the ‘namers’ should also be shamed where appropriate.

For example, you may have seen this headline recently Complaints Commissioner rebukes FSA for withholding information”The FCA responded (as the rebadged FSA) to the findings by saying “We agree that total transparency is necessary to ensure the objectives of the scheme are met.”

So that’s it then, no naming, no shaming, just move on?

This is not the first time that a regulator has fallen short of delivering the standards it expects of firms. Tony Holland, the Complaints Commissioner and former PIA Ombudsman observed when finding the FSA was ‘unprofessional’ and ‘lacked integrity’ in March this year that “ “References have been made to principle 11 which states a firm must deal with its regulator in an open and co-operative way. In my view although this applies to regulated firms it must equally apply to the FSA.”

We hope that the staff involved have at least been reprimanded although I suspect nothing will have happened, not even a day of ‘integrity’ training.

But, N&S-ing the N&S-ers does not seem too welcome as that would imply responsibility. The FSA was not keen on that at all, the FOS works on “Merricks Law” (as in they make it) and governments, local authorites and politicians get very tetchy if on the ‘N&S’ radar.

Politicians are possibly amongst the worst offenders, often setting the precedent of do what I say, not what I do, that others then blindly follow. Any sense of shame seems to have been surgically removed upon their taking up office.

I think pretty much all adviser businesses make great efforts to do the best they can for their customers, in financial services they pay dearly for that privilege.

Let’s cut those very good adviser firms some slack FCA, be more open and set the bar for high standards, not find ways to duck under it with impunity.

Stand well back, something nasty is about to hit the fan

Well, it had to happen. The fan is about to be turned on and a very unpleasant mess could be getting carefully molded at Canary Wharf to hit it.

The FCA boss, Martin Wheatley says “In some cases, firms are charging a percentage of product investment, and clearly it takes away product bias in the sense that we are no longer seeing firms recommending particular products because of the payment that comes to them, but it does not take away ‘dealing bias’, because if you only get paid if people buy a product, then you are going to want them to buy a product rather than pay off debts or do something else.

There are some concerns about whether that is entirely compliant with the philosophy we have set out, and it is something we will come back to.” 

There is considerable anti-Wheatley adviser anger expressed within the Internet ‘ether’ but for once, speaking as a very staunch defender of advisers, I think they may have not focused on the real metrics behind his words.

Martin Wheatley actually has a point and advisers should really take notice of them before it is too late as adviser charging of fees as percentages through the product could well manifest itself in a soon to be named miss-adviser charging crisis if Canary Wharf has it’s way.

Advisers should not be afraid of making profit or seeing great inflows of income but adviser charging by percentages of funds under management rather than time taken was always going to be sailing a little close to the regulatory wind in a fee only world. And yes, this thought may not go down too well out there, but it is a fact.

Adviser intentions from Panacea winter research carried out with GfK indicated that some 72% of advisers would levy their charges via the product, and astonishingly, a significant number would not use providers who did not allow this facility- product bias?

Results from our latest and very detailed GfK research conducted with over 400 advisers has indicated that post RDR, most advisers are charging fees to the fund. A leaning toward an initial fee of 3% of funds invested and 1% for ongoing advice per annum across a wide array of segmented servicing models seems to be their stated norm although provider feedback would suggest a lower figure is more the reality, 1-1.5% as an initial fee and .25% to .5% ongoing.

Should we be surprised that the upper percentage of initial adviser fee quoted for a lump sum investment today is very similar to single premium pre RDR basic LAUTRO commission payment, around 3% I seem to recall?

If Frank Carson was at the FCA he may say, “it’s the way I tell ‘em”.

But, let’s look at how the FCA may choose to look at this issue, advisers should take note, with the benefit of foresight on this occasion.

Based upon the GfK research, a proposed investment of £250,000 would see the advice fee set at £7,500. But what would the picture be if the FCA asked that the fee be justified based upon an hourly rate?

Of course time taken does not have any formula to accurately indicate an actual duration as every client is different, but given that the average, GfK survey confirmed hourly rate charged by advisers was £167, the ‘math’ would imply that by comparison the advice on a time basis for a £250k invested amount equated to 44.9 hours. I am not an adviser any more, but with so much technology resource available today, taking over a working week seems a lot of time to justify for one client? The FCA view may be similar?

For an investment of £100,000, the fee would be £3,000, and a time basis reflection of 17.96 hours. Yet the time taken to fact-find, research, report and execute a transaction or series of them may be less than for an investment of £250k. Or more?

The FCA will take a view that the RDR was not about professionalism by way of qualifications providing the ability to see adviser payment by a rebrand of commission. It is about reflecting professionalism by charging in the same way as other ‘professions’ (if profession creation was one of the intended RDR outcomes) and that is by charging purely on units of time.

The actual source of fee payment, either direct from the client or from the fund is not too relevant. But should it be based on time?

And should it be linked to a transaction? After all, the logical conclusion is no transaction after advice given equals no fee- as Wheatly implies, yet the time taken is almost the same, a service has been rendered and payment is due? Or is this a disguised advice cross subsidy?

So, how would advisers explain to the FCA that the following* is ‘TCF’ in a fee based, advice driven, post RDR world when charging advice to the fund?

Scenario 1: Advice charged to fund at 3% plus an ongoing 1% per annum, £7,500 (provider charges are on top):

Male 40 attained pays £200,000 as an SP pension contribution, it is grossed up to £250,000.The fund at age 65 and assuming a return of 4.9% would be £1.40m.

Scenario 2: Advice paid direct by the client on an hourly rate (provider charges are on top):

Male 40 attained pays £200,000 as an SP pension contribution, it is grossed up to £250,000.The fund at age 65 and assuming a return of 4.9% would be £1.85m

*Research data provided by a leading life office 26th July 2013, assumptions are an extreme!

So over a 25-year term, the eventual real cost to the client of initial and ongoing advice for this single premium contribution when charged to the fund would be a staggering £450,000 less of course the impact of adviser charge hourly billings.

If the client was charged on time, the hourly rate would be??????? Well you work it out on your own hourly rate

It would be interesting to see a comparison of time based charging v percentage when levied to the contract over the term of the contract.

But I believe that what Martin Wheatley is actually saying is that the FCA now thinks, unlike the FSA, that basing charging on percentages of FUM, both initial and recurring, is not right.

Where I do take issue with Mr. Wheatley is that after many years of progress toward an RDR world (where the FSA, as was, agreed with the concept and amounts involved when charging a percentage of funds under management to the contract) he is sending strong signals that this new regulator does not see it ‘appropriate’ that this previously agreed level and type of charging should continue and that we should prepare to hear that stable door slam soon despite very many adviser post RDR businesses being based on this charging methodology.

The more cynical conspiracy theorists among us may have very strong suspicions that the FCA is wanting to find yet another way to get rid of advisers by making it impossible for them to remain in business as the imposed income reducing possibilities of RDR cannot ever match the increasing and varied calls of cash from the regulator, FSCS and the FOS.

In fact the only way advisers can remain in business with such a proposed ‘chocking off’ of income flow is that there is a similar ratio reduction in regulatory fees, by that I mean those of the FCA, FOS and FSCS.

After all, consumers could see much lower advice costs if firms did not have to ensure they are treading dangerous and deep fiscal water just to see survival in the face of the huge costs that regulation forces upon them.

And where is the consumer in all this? Research findings to be released by GfK soon would suggest that there is a significant reality gap between what advisers think consumers will pay for advice and what consumers would actually pay.

Not a good RDR outcome if advice for all, but at a cost, was the intention.