hargreaves lansdown aims to ensure its advice is paid for by moving to a fee-based system
IFA firm Hargreaves Lansdown is to switch from charging commission for advice to a fee-based system under which clients will choose from a menu of charging options.
Over the next six months the firm will restructure its financial practitioner business to enable it to conduct 80% of its advised business on a fee-based model.
Peter Hargreaves, managing director of Hargreaves Lans- down, said clients are increasingly going to discount brokers after receiving advice from intermediaries, leaving the commission-based adviser with no return for their efforts.
He believes this threat would be removed if clients were charged a fee for preliminary advice as it would not matter if they chose to then go elsewhere to make their investments.
Hargreaves said the model he envisages his firm adopting is to charge fees for advice and information, with clients being given a menu of different options at the outset.
He added: 'If we think all the clients needs to change is something administrative, we will charge a fee to sort it out.
'However, if we believe the client needs something greater, like a new product that charges commission, we will show them how much we will charge and then rebate the commission.'
An advantage of adopting a fee-based stance, according to Hargreaves, is that clients can get advice that does not always involve them having to invest in a product afterwards.
He said: 'There is a definite will on the part of the industry and the client for an honest fee. People want to be told what they should do, not what they should invest in. Commission-only salesmen only make money when they sell a product.'
Hargreaves Lansdown's execution-only business will be unaffected by this move and will continue to charge commission, most of which it takes from renewal.
Hargreaves said if investors know which product they want, they should go for execution-only services, but if they want advice, they should pay the up-front fee.
Nigel Yeo, head of investments at rival firm Chase de Vere, said his company still favours the commission-based advice route for the retail market since clients generally do not like having to pay large up-front fees.
For the retail market, 90% of Chase de Vere's advice is commission-based and Yeo said clients are comfortable with this position as long as the group is transparent about remuneration.
He said: 'There are a lot of issues surrounding fee-based advice after the Sandler report. We are not averse to rethinking our proposition but at the moment it is not a key issue for us.'
Yeo added Chase de Vere's high net-worth clients are happier paying a flat rate. However he said this is charged on the assets that are being advised on, rather than being a set fee.
Darius McDermott, managing director of Chelsea Financial Services, said that as a discount broker, most of its fees come from renewal. Its sister company, Chelsea Investments, charges for advice from commission.
McDermott said this move by Hargreaves does not surprise him post depolarisation and the Sandler report.
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