There is a myth perpetuated in financial services that ‘clients will not pay fees'. My experience is very different. Where it is possible to articulate value to a client they will of course pay fees for financial advice. I do concede that commission offsetting is a tax efficient and simple way of paying fees but it is a question of process rather than intent.
Where ‘fees’ are simply a euphemism for ‘the commission I would have earned had I flogged you a product’ then of course clients will not pay fees!
The recent research from Aegon Scottish Equitable confirming that clients will not pay fees may simply be based on them asking the wrong questions to the wrong people.
It was more pleasing to hear some common sense from Abbey. The IFA sector will have to operate on fees in the future. It is becoming an inevitable outcome.
Nobody knows what the outcome of the FSA's retail distribution review will look like. The regulator is asking the financial services sector to find the solutions to the broken business model, but it is asking a sector that has a vested interest in maintaining the status-quo.
The current business market is bust. I'm not impressed if your company has a big turnover but makes losses each and every year. I'm not impressed if your 'business' collapses and leads to bigger FSCS fees for me and other prudent business people to cover. I'm not impressed if you sell products and then neglect ongoing servicing, leading to a poor consumer perception of all IFAs.
Here is my radical prediction for the outcome of the retail distribution review:
- Do away with indemnity and 'funded' commission - right away, and
- Allow advisers to continue deducting fees from the financial products they recommend but do this on the basis of 'factory gate pricing'.
Of course, this will scare the hell out of those old model advisers who prefer to disguise their remuneration within complex product charging structures.
Martin Bamford is director of Informed Choice.
The views expressed are those of the author and not those of the firm he represents.
Several comments have been sent posted by IFAs in response to this blog since its publication, as well as by Martin Bamford in return to those posts. The huge number of comments made means we have moved all comments on the subject of this blog to the discussion board.
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