Peter Hargreaves hit an eloquent note recently when he suggested the IFA sector was all but doomed in that it had failed to achieve a viable scalability within its business models.
He was describing the ’piecework’ most advisers do, resulting in a linear relationship between output and income. Peter on the other hand uses ’subscriber work’, something you can do once and then multiply up as much as you like for little or no extra effort.
The Hargreaves’ way involves no advice (mostly) and people being empowered by IT to make their own decisions, with a bolt-on fully advised – but more expensive – offering for those who want it.
I am not sure Peter was saying his is the best way, but I suspect it is the most remunerative and certainly the least troublesome in terms of regulatory hoops that must be jumped through.
Results at Hargreaves Lansdown speak for themselves but it does not make it better per se, as it depends how you define ’better’. And that very much describes the current assumption that fees are preferable to commission. Certain ’new generation’ advisers scale their efforts by doing replicable work and charge for it as though it were unique each time. Or worse still, claim to charge fees when everyone else would understand it as commission.
It is not surprising IFAs are warming to fund-based commission – it does not take a genius to work out the long-term cashflow advantages – so you can understand why the FSA is pushing advisers to earn their FBC. And if you can call it a fee, even better.
I am not saying either commissions or fees are better – in the wrong hands, both are open to abuse as we are already seeing in some new ’RDR-friendly’ models. Customer agreed remuneration fails to address this, and early mechanisms to agree ’fees’ leave me in no doubt.
A system that embraces all methods of remuneration openly and clearly should be possible, so we can stop talking about alienating elements of society that can neither afford nor who are inclined to pay fees.
At Thameside we have been embracing fees and offset for years and are well positioned in this new phase. But this does not stop me feeling compelled to point out the likely errors of a flawed system that will exclude perfectly decent clients while at the same time failing to stop others being ripped off by those using an overly complex regime to baffle their hapless victims.
Tom Kean is director of Thameside