Fees could see decumulation clients fire their advisers
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Bloch: ‘Fastest way of increasing your income is by sacking your IFA’
Clients in the decumulation phase are more likely to feel the impact of adviser-charging, which may prompt them to get rid of their adviser.
Taxbriefs editorial director Danby Bloch says the effect of adviser-charging will be felt differently by different types of clients, depending on whether they are growing assets or taking an income.
At a Money Marketing round table on adviser-charging last week, Bloch said: “With a growth-orientated client, fees are somewhat less visible. If fees are taken as a small proportion of a large investment, the client can cope with that.”
But he said, where an income is being taken, the adviser fee can significantly cut into a yield of 3 or 4 per cent.
Bloch added: “If a client starts relating adviser charges to the net income, that is an unpleasant comparison. And what is the fastest way of increasing your income by 50 per cent - by sacking your IFA. I suspect that quite a lot of people will do that.”
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Readers' comments (6)
John Blackmore | 2 Jun 2011 1:03 pm
Having an adviser, more often than not, will provide value. The real question though is whether that value is greater than the cost of the advice.
The point that no one can dispute is that the RDR has already increased costs enormously and is likely to continue to do so
My take is that unless a client has really complex problems then the balance may well now be tilted away from taking advice - costs being greater than benefits.
Well done FSA - the cure is proving to be worse than the illness.
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Nick Bamford | 2 Jun 2011 1:10 pm
I have to partly disagree with Danby. It is entirely about demonstration of value. Where he is right is that those clients whose focus is entirely on price may well react the way that he describes. What we have to do is to demonstrate to the client the value that we add when they are in the decumulation stage of their lives.
If we cannot demonstrate value by the way then the client absolutely should sack us. I don't think that we should let transparency become a problem when infact it is a benefit
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Anonymous | 2 Jun 2011 1:16 pm
A considerable proportion of any and all charging structures is levied (by advisers and financial services groups) to cover the horrendous cost of the FSA (including RDR). We also have to cover the cost of all the other quangos who indirectly take their income from the sale of financial services products (FSCS, Ombudsmen, ICO) and of course, the massive compliance industry which only exists to protect financial services from falling foul of the regulator. If that weren't bad enough, VAT is looming on the horizon and HMRC also wants a share of any profit Joe Public might make.
This chap Bloch might be proved right but the public would be better served by the FSA 'topping' itself' and when the government stops taxing the thrifty once, twice, three times or more on the same money (IT, CGT, IHT).
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Green Eyed Monster | 2 Jun 2011 1:32 pm
The client can sack us, but we can't sack the client!
Even though the client may stop paying for our services we cannot turn off the liability switch. The client can save the fees but we must still keep paying the PI premium to protect the ex client against loss, should he decide to claim against us at any point in his lifetime.
New rule book required methinks.
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Mark Creed | 2 Jun 2011 1:53 pm
My view is that the value of on-going advice can be clearly demonstrated to a client who is HNW. For all other clients the on-going value ends when the need that drew them to advice in the first place has been met by a product, or guidance. Ergo in the brave new world IFAs can only sustain a profitable business if they deal with HNW clients and there aren’t that many to go around. One off product sales on a fee basis will not be a profitable model, as price will become too big a factor. The end result is the average man in the street will not want to use an IFA and IFAs won't want to advise him. The IFA market will contract further than the worst estimates beyond 2013 which will be exacerbated by the advancement of technology whereby clients can purchase over the internet at low cost – I have friends in their 30’s who invest reasonable sums via discount brokers using online tools, who are the same type of people 15 years ago who would be seeking advice from an adviser. Over the remainder of my career (25 years+….come on lottery!) I am convinced that clients who are HNW will get the best advice from the best people and everyone else will be disenfranchised. I am sure lots of fee models will come and go trying to cater for the average person but each missing the point that people would rather focus on today rather than tomorrow. When the average person on an average income with nothing obligating him to review says ‘yes, I am happy to pay you Mr Adviser a fee of £3,000 plus VAT (£600) to consider whether I should transfer my pension or keep it’ I will be delighted to have been proved wrong. I am not bitter about this because I am RDR ready (according to this weeks guidance, who knows next week) and work at the top end with HNW clients. Personally RDR is of huge benefit to my career and has indirectly lead me to join a HNW company, although I do lament the fact that the ordinary man and hard working decent IFAs (there are some!) fair worst out of RDR.
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Robert Ward | 2 Jun 2011 2:36 pm
the argument that a client will sack his advisor for charging a fee holds little water. so long as the fee is for doing something wanted or needed by the client they are happy. its only if you initiate a charge that was not there before. One assumes that the IFA got paid before why is it different now.
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