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Advisers must justify charges

I was interested to read Nick Bamford’s comments on fees versus commission (Money Marketing, December 15.) The fact that IFAs have traditionally earned their income from commission on the products they sell has left some people with the perception that IFA services are free of charge. However, with many IFAs now moving towards a fee-based system, this begs the question, will savers sacrifice good advice to avoid paying up-front?

High earners and individuals with significant liquid assets are already comfortable with paying up-front fees but what about servicing the needs of lower-income earners or those in debt who are unable or unwilling to pay for advice?

Paying for advice with no visible deliverable is unlikely to encourage this group into saving for retirement.

The saving squeeze will only be worsened by recent pension scandals, which have deterred some savers from investing for their retirement, preferring instead to plough their cash into property and to spend any surplus cash today.

With many IFAs being forced to raise their fees to cover the increasing costs of complying with the legislation that governs their businesses, will more savers decide to sever their relationship with their existing IFA and elect instead to seek advice from an adviser who is tied to one or more companies and derives his remuneration from the sale of a product?

Of course, some advisers will continue to sell products and claim their commission as rightful payment but does this system always guarantee clients best practice?

Advisers must learn to be open about how their charges are justified, whether they are fee or commission based or even a combination of the two. Clients need to understand the true value of good advice and both parties need to be clear from the outset about the terms of engagement. True holistic financial planning can only be achieved if it meets the mutual interests of both client and adviser.

Mike Nevill

Vantis Financial Management

Epsom

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