True FP says professionals prefer to pay for any financial advice through fees, but just how true is...
True FP says professionals prefer to pay for any financial advice through fees, but just how true is this? How do you feel about the fees versus commission debate, or is there another issue you would like to discuss?
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This latest comment comes from Glen McKeown from Ambergate in London.
Re: Fee-related advice
The research is probably correct, so far as it goes, though it is interesting to note that it always supports the view point of the organisation commissioning the research.
However, professionals do like to tell Porkies when it comes down to fee paying. While they will say that they like fees, its takes the Mafia to get the money out of the majority of them. They no more like paying up front for a service than anyone else.
Moreover, it is difficult not to detect a level of sanctimonious snobbishness about the organisations that charge fees. There is no research that I have seen that has ever established that those you pay fees DO actually receive better advice than those who choose to pay through commissions.
The quality of advice relates to the competence of the adviser, not the way in which he/she is remunerated. Why don't we concentrate a little more on that angle, and the practical ways in which we can raise standards in a cost effective manner.
Neil Shillito from SG Wealth Management in Norwich - one of IFAonline's regular commentators - says fees is the preferred route, but evidence sometimes needs more to be conducted more thoroughly.
John Baxter of TRUE is right only because our own experience, anecdotal evidence and indeed common sense would all point to the need for fee-based advice. His methodology to substantiate his claim is however weak and flawed and therefore the currency of the article is sadly devalued.
Gary Mitton of Medics Investment Services, also points out that while professionals might like the concept of fee-based advice, clients invariably opt to pay the bulk of remuneration through commission.
Which planet are these guys on?
In principle many clients like the "idea" of fees rather than commission yet in reality they invariably opt for commission when the payment structure of services is explained to them.
My clients are professional people and invariably choose the commission method of payment.
Do the authors of your article know how to explain to clients the facets of payment for services? I think not!
Andy Jervis,director at Chesterton House Financial Services has come out in support of the fee-based regime.
John Baxter of True has hit the nail on the head. No-one who thinks about it would ever expect a financial planner to work for them on anything other than a fee basis. I agree wholeheartedly with John that clients can see this clearly, it just seems to be IFAs who need to justify commission because they haven't yet worked out how to provide a service that clients want and will pay for. The old model id dead! Long live the old model!
But is fee-based advice really going to work for all? It may work for a solicitior tied to a fee-practicing legal firm, but does it really appeal to all clients, asks one reader who prefers to remain anonymous.
I have been a fee-based adviser for more than 10 years offering full financial planning. In that period only three clients have actual paid a full fee and that was for specific instructions, which mainly involved helping the client(s) with probate. The vast majority of my clients still prefer to pay a small retainer fee and to offset the commission received against fees otherwise chargeable. My client base varies and in the main they are professionals who have retired with substantial amounts of ready realisable assets.
Recently, I was asked by a barrister to do some work, whose fee income last year was circa £1m. The work requested was very specific and I estimated that the work and time spent in the first year would have cost him £3000 - £4000. After relaying this information to the client we heard nothing further. By chance I met the client who had referred the barrister to me who informed me that they ended up taking advice from the bank.
Bar a few very wealthy individuals (based mainly in the South) I would say that the majority of clients, given the choice, would still prefer commission offset.
My experience has shown that - regardless of whether I have been paid by retainer or fee with commission offset - providing I am transparent with how I spend my time with clients and the costs, they are happy with the service.
What the industry needs to do with clients to gain their trust is to account fully for their time. There are many time ledger systems which can assist them.
Post Sandler I think there will be many other companies marketing the benefits of fee-based advice. Most of their ideas are based on one man and therefore I would treat these companies with scepticism.
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