Charging myths

1 February 2010 8:00 am

So many myths surround fees. The RDR is proposing to introduce adviser-charging. There is a big difference between adviser-charging and fee-charging. With the latter, you charge for advice regardless of whether your customer implements that advice by purchasing a financial product.

With the former, you could continue to work on a speculative basis and only get paid out of product charges.

I think that skilled advisers do themselves a disservice by working on this speculative basis. It means you only get paid for the application of our knowledge, skills and experience if the right solution for the customer is a financial product from which you can be paid.

This does two negative things. First, it introduces potential for bias despite the best efforts of the adviser.

Second, it results in cross-subsidy between clients. The nature of this way of charging means the costs of dealing with those customers who do not implement a product are met by those who do implement a product.

Another fee myth is on the subject of VAT. Charging fees does not in itself result in the addition of VAT to charges. The nature of the services that determine the VAT status. Where your service is still mostly intermediation, it remains exempt from VAT. Advisers moving to a more explicit charging structure need to seek accountancy advice in this area but, in general terms, a change to the method of payment does not trigger VAT.

For some reason, probably because it is the way things appear to have been historically, some advisers feel they should be able to set out their stall for every single member of society.

Business does not work like that. Simply because in the past it has appeared that you can work on a profitable basis with everyone from Joe the Plumber to Mr Moneybags does not mean this is a viable model for the future.

Things change and have already changed. Clearly, a key factor for failure in business is failure to evolve.

It is time for the IFA to stop thinking of the entire world as their prospective client bank, start drawing up a specific client profile and focus your energy on working with them rather than purporting to be the saviour of society, keeping those in lower socio-economic groups away from the evil clutches of the banks.

Like the Revenue’s claim about taxes, fees need not be taxing. Continue to perpetuate the myths surrounding what happens next and they certainly will be.

Martin Bamford, chartered financial planner, Informed Choice

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