A leading economist, in a report which landed on Vince Cable's desk, said he doubts the ability of fee-charging advisers to tell clients to do nothing. Is he right to?
“Even if the sources of commission bias are removed, fee-based financial advisers will still have a bias towards action,” the long-awaited Kay Review, written by leading economist Professor John Kay (pictured), reads.
“It requires strength of character to advise a client to do nothing, and few clients will pay much for that advice.”
Not only were these words delivered by a respected academic, they also landed on the desk of a key cabinet member: business secretary Vince Cable.
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However, Kay’s verdict has triggered something of a backlash from advisers, who say they are very happy to tell clients to do nothing – and get paid for it.
For Alistair Cunningham, financial planning director at Wingate Financial Planning, client education can solve Kay’s problem with relative ease.
“I think the truth that comes from [Kay’s] points is that many clients do not realise how much work a firm is involved in to tell them to do nothing,” he said.
“We’ve therefore developed several mechanisms to remind them, often as many as a dozen times a year, that we’re here, doing stuff, even though the outcome may be to remain put, and earning our fees.”
One of the surest ways of educating clients about what advisers do is to tell them how much everything costs, said Kim Barrett, senior partner at Barretts Financial Solutions.
“If we see a client for an annual review and everything is rosy, we won’t change anything,” he said. “I’ve yet to have a negative response from any clients yet.
"We will literally tell a client what they have paid us, what they paid the wrap provider, what fund rebates they are getting and what net charge that distils down to. We welcome the debate on fees and no one gives us a hard time.”
A problem of our own making?
Though the industry is months away from officially doing away with commission as a means of remunerating advised business, one IFA said he could understand Kay’s conundrum.
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