In the wake of both CP 121 and Sandler, the spotlight has clearly been focused on remuneration and t...
In the wake of both CP 121 and Sandler, the spotlight has clearly been focused on remuneration and the perceived conflict of interest if an adviser receives commission. Sandler has even questioned whether an adviser should be called an adviser if the costs are funded by a third party, rather than directly by their client.
While some observers have denounced the recent proposals as lacking evidential justification, and even naive, most people would agree the current questionmark over the impartiality and objectivity of advisers must be answered if the sector is to survive and flourish.
Optimists are of the opinion that the brave new world of fee-based and effective training and competence regimes will lead to the birth of a true financial adviser profession and cite the development of the legal and accountancy professions over the last two centuries. However, in light of recent legal and auditing scandals, lawyers and accountants are not without their critics.
The current 'blue sky' thinking has sought to address the principle of how advisers should operate. Rather than experiment and play havoc with current businesses and real clients, in the hope that a suitable framework will be discovered, consultation should be undertaken in order to learn from advisers already working on a pure fee basis within professional environments.
For a start, payment of fees is not the nemesis that some fear. Indeed, it is an extremely effective filtering mechanism that allows you to identify clients who are committed to a mutually beneficially relationship, as opposed to those are seeking to gain free advice and then buy direct.
In addition, the agreement of instructions and transparent fees obviates any doubts or mistrust a client may have, as the adviser's impartiality is beyond question. Furthermore, the client accepts that future reviews will attract charges, whether or not commission is received or further investments implemented. There are, of course, many who are already working successfully on this basis.
The difference for advisers operating within a professional practice is that formal protocols and rules have already established clear guidance and ethics to follow. These rules are fundamental and extend to all areas of practice; for example, Practice Rule One of the Solicitors Practice Rules is 'always act in the best interests of your client' ' it doesn't get simpler than that.
However, any developing profession would do well to set out clear and frank guidance along these lines.
Being fee-based is not without pressure, as productivity is often judged by chargeable hours recorded and work in progress. However, it is noticeable that most firms take a medium to long-term view and pressure to meet this month's target is rare ' since this could result in appropriate advice or unsuitable investment timing.
Historically, some professional firms have opted for separate financial planning businesses or have run these departments as a satellite to the business on a commission basis. Many are now opting for integral fee-based departments, due to the cross-selling opportunities.
Paul Willans, director of financial planning at London accountants Blick Rothenberg
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