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I Thee Endow

Blue Witch's post on endowment mortgages has made me a bit cross. As someone who's sold both kinds of mortgage, I just want to put the unpopular view here. People who organise mortgages are normally paid on commission. Often, that's 100% commission: if they don't sell anything, they don't get paid. At all.

If you want to stop bad advice in the financial services industry, and that includes pensions/life/PHI misselling as well as mortgages, you have got to stop paying advisors on a commission basis. You can't possibly expect anyone to give "best advice" when their own livelihood is in conflict with that.

Mortgages can be enormous hassle to organise: especially ten or twenty years ago when the market was not so competitive as it is now, finding "the best deal" could take many days of work. I remember very well the first mortgage I ever sold: my clients' bank had recommended them an endowment mortgage which was going to cost them £710 per month. The deal I found for them cost £480. They were utterly stunned and completely delighted. But it took a week to find that deal.

Repayment mortgages earn almost nothing in terms of commission; endowments on the other hand are very lucrative for the advisor. Seriously, which are you going to advise your client to go for? Especially in the early 90s when the stock market was incredibly bullish and no one thought things could EVER be as bad as they are now: endowments were seen to be good for the client AND good for the advisor: "and at the end of the investment period, your endowment should have made enough to pay off your mortgage, and hopefully enough to leave you with a little bit extra too".

The industry is, albeit slowly, trying to clean up its act; I heard the chairman of the Association of Independent Financial Advisors on Radio 4 a week or so ago, talking about how he'd like them to get Chartered status. When I started in the finance industry, you had to do a one week training course, half about the products and half on how to sell them. Now, even in order to see a client on your own, you do have to pass several exams which are approximately GCSE level. If you want to progress in the industry, you have to pass further exams.

People are going to have to accept that running their financial affairs is not just a matter of filling a form out now and again; it takes thought, and work, and knowledge. There is stunning ignorance throughout most of my generation, for example, on what we need to do about our retirement. "Oh, I'll be okay." "I'll get a state pension." Maybe you'll get a state pension (maybe you won't), but it will never be enough to live comfortably on; it was never meant to be. I can't imagine what would make most of my peers make any kind of provision for their old age if they didn't have a salesperson in their living room bullying them into it.

I don't know what the answer is. Maybe we all have to become more astute. Maybe we have to put aside our credit-based culture and think differently about our money. Maybe we have to accept that, just as we pay our solicitor to get legal advice, we have to pay our financial advisor to get financial advice: I'm talking about the flat-fee appointments that my acquaintances still in the industry loathe the thought of. Would you prefer to pay up front for the advice, or would you prefer a little of your investment to go to the person who found it for you? I don't know.

One thing I do know is that, though it's often a choice between the advisor losing out or the client getting less than great advice, the investment companies themselves have got the lot of us over a barrel. The greed of these giants is not only bad for their clients, it's very, very bad for their employees too.

Posted by Somewhat under Work on 2004.06.12 @ 11.24.

Somewhat said:
Actually, to be fair to BW, it isn't just her post that's made me cross. It's the way, throughout this whole affair, that "greedy financial advisors" have been the baddies. If it's okay with you, Mr./Ms. Client, I would like to eat and pay my rent.
# 2004.06.12 @ 12.10

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