I was interested to read Alan Lakey’s article on the problem his clients have with fees. I recently saw a 25-year-old plasterer wanting advice on a pension. He wanted to see me at his home in the evening to discuss it in broad terms and then to see me again, same time, same place, to conclude the transaction. The total time spent on the whole process, including travel, research and writing a recommendation letter between the meetings, came to around five hours.
If we forget the travelling time, at £150 an hour, that should theoretically earn me £600. This, however, is an individual who is unsure if he can afford £50 a month net, so you can imagine how little chance there is of him paying a £600 fee.
On the other hand, he is completely happy for me to be paid commission and for the cost to be spread over the life of his investment. He is in business himself and he understands that I need to get paid for what I do and that he ultimately pays for my commission just as everything he buys in his business contributes towards somebody else’s pay packet and pension.
At this point, a certain type of adviser will no doubt lecture that IFAs are not charities and that this is the type of client who should be sent to a bank. However, he wants me to do the job and as I look after the rest of his extended family, I do not want to give him the brush-off.
Throughout the RDR debate, the FSA’s sub-text has been that commission is automatically always and irredeemably bad, likewise factoring. Where single-premium investments are concerned, I do not have a problem with the move to fees. I have operated on a fee basis since I launched my business in 2004 before the RDR was ever thought of. But where regular-premium business is concerned, particularly pensions, the FSA is so wrong.
The commission basis of payment means that the adviser accepts a risk that he or she will ultimately not be paid in full for the work they have done if the policy is discontinued or payments are reduced. Yes, the client pays for it but that cost is clearly disclosed. Yes, the client would have more in his pot at the end of the day if no commission were deducted from that pot at outset but so what?
If the amount paid as a fee at outset were invested in the plan instead, the pot would be that much bigger. Commission and factoring merely make advice affordable for the client to obtain and for the adviser to deliver. Looked at another way, if IFAs did not have to pay so much to the FSA, the FOS and the FSCS, if chasers were not able to abuse the FOS’s service for free and if dishonest clients were not free to lie with impunity and, with the protection of the FSA, to attempt to get a pecuniary advantage by deception, our businesses would be cheaper to run, with the result that we could charge much less, so the client would be better off that way.
West Riding Personal Financial Solutions, West Yorkshire