It is early November and the talk of financial advisers almost invariably turns to money and how they are going to be paid.The Institute of Financial Planning has always had the promotion of fee-based advice as one of its drivers. One might have thought that depolarisation would have been straightforward for an organisation so committed to fee-charging but, in the run-up to June, things were a little more complicated. Amid all the talk about the menu and maximum comm-ission arrangements, fee-based advisers also had to do a fair amount of work to ensure compliance with the new regime. They still had to put together a Key Facts About The Cost Of Our Services document and explain in their client agreement or terms of business how they were going to charge. The second requirement was part of the existing rulebook. The process of reviewing documentation produced some genuine problems. The new regime, in requiring almost total fee-based purity, stopped firms from quietly retaining trail commission without wondering whether they were entitled to it. Even for pure fee-based advisers, the review process revealed that a fair number were a little vague about how they charged. Fee-charging is more complicated than it looks. Hourly billing is open to abuse. Very occasionally, the IFP disciplinary committee has had to consider issues relating to integrity and approaches to fees. The FSA itself appeared to be in something of a tangle over whether commission crediting against future bills constitutes holding client money. It also needed to sort out the trail problem. On the first issue, the FSA now accepts that com- mission can be taken by the firm and credited against future work done. But once the arrangement has ended, any commission must, in theory, be paid direct to the customer. The FSA also accepts that de minimis payments can be retained without explaining what they mean but there is a danger that firms using higher figures for such sums are gaining an unfair advantage over those which scrupulously send out cheques for amounts over, say, 20 a year per client. The FSA needs to lay down a fixed sum per client which can be retained, otherwise it will find it difficult to take enforcement action against businesses retaining more than is appropriate. Firms should put a modest amount in the client agreement, adding “or any amount that the FSA lays down as constituting de minimis trail commission”. That will protect them against the regulator laying down a higher amount in the future. The FSA has effectively waived the rules on client money for sums held as credits against future work. But it may be worried about a non-problem here. The client agreement should make it clear that com- mission is the property of the firm, not the client. But it creates an obligation to pay the client the money on termination and do work for nothing otherwise. With this formulation, there should be no client money problem. The FSA is confusing a matter of contractual obligation (to pay the money or do the work without further payment) with a matter of property law. The IFP disciplinary committee has had to discipline members for three types of unethical behaviour. First, every adviser, when a bill is queried, must be able to explain why each charge has been made. Files must contain a clear paper trail in this respect. Second, an adviser cannot charge for handling client complaints, including the Financial Ombudsman Service fee. The ombudsman takes the same view. Typically, the charge is not provided for under client agreements. In any event, Parliament has made it clear that the FOS is free to consumers. Anything which restricts access to the ombudsman would be contrary to public policy. Finally, a firm cannot retrospectively agree an increased charge for work already done. Not long ago, the financial press contained a vigorous discussion about the rule against overcharging. The correct approach is not to look at the size of an hourly rate but whether overall reasonable value for money has been given. Someone with great expertise working quickly is entitled to the same, if not more, money than a relative beginner. Financial planners often take a monthly retainer. The concern is to identify what is being provided for this payment. There is much to be said for a clear explanation in the client agreement. It may be a form of advance payment for services rendered during the year. In other situations, the firm may offer ongoing investment reviews. Lack of clarity can make an IFA liable for failing to provide regular monitoring which they never intended to promise. These problems represent the tip of the iceberg. The legal profession has for years debated the ethics of hourly billing with its potential for firms to prolong tasks in order to increase fees. Clients want to know how much a service is going to cost them. Estimated, capped or even flat-rate billing can be an attractive solution to this. Pre-June reviews revealed a number of firms which charge for particular tasks over and above their commission payments. There is a danger that the maximum commission amounts could be inaccurate as a result. But there is nothing in the rules to stop a firm charging a mixture of fees and commission so long as fees are not used to distort the commission figures on the menu. In one respect, it is vital for firms to do so. Every client agreement should state that the firm will charge its hourly rate for any admin brought about by a provider’s failure to exercise reasonable care. Such a provision entitles the firm to invoice the client for admin problems and assist them in recovering the sum from the provider by means of the latter’s complaints process and the ombudsman. The amounts of charges and work they relate to must be set out in simple terms in the client agreement. Firms must think clearly about what they wish to charge for and clients must not be billed for services not covered by the client agreement. If this process helps advisers to consider what services and value they actually provide, then the FSA may have unwittingly done the industry a favour. Good IFAs are entitled to make good money from their work but, if they have not reached clear agreements with their clients, regulatory problems may hang heavily over them in coming years.