I have followed Intelligent Money's bid to claim back renewal commission with interest. In my view, this is likely to be the preserve of self-select investors who are happy to make their own financial planning decisions without guidance and who wish to minimise their costs. For such investors, the service will undoubtedly prove of great interest.
But if Intelligent Money, which is taking the moral high ground regarding the way the industry structures its costs, is aiming to devalue the worth of independent advice, it is setting a dangerous precedent. At a time when investors are battling against pension shortfalls and an ever-increasing range and complexity of products, good financial planning is proving more important than ever. Being encouraged to shun independent expertise does not seem in the best interest of most investors.
Sadly, like most professional services, financial advice comes at a price. Renewal commission is designed to enable servicing of an ongoing contract and a lot of IFAs do provide that service to the satisfaction of the client, who is happy to remunerate the IFA from the product's management charge. Renewal commission provides an incentive for advisers to follow a continuing relationship and also provides scope for advisers to provide a number of soft services that clients take for granted.
Here, I am talking about newsletters, a website, ad hoc advice over the phone and valuations on request. Clients need to ask whether they are depriving themselves of future advice and services by taking on this rebate service.
Many investors may try to follow what they believe to be the best of both worlds by utilising Intelligent Money and then choosing fee-based advice from a third party.
However, fee-based advice remains largely restricted to high-net-worth clients. Expert feebased independent advice from an adviser not earning any renewal commission may be not prove cost-effective for most clients.
It is important to remember that IFAs provide a major distribution channel for product providers and, if they do not receive renewal commission, this source will largely dry up. This will lead to product providers having to increase the cost of their own distribution, which will be passed on to consumers. Alternatively, it is likely that product providers will restructure the way that intermediaries are remunerated, making Intelligent Money's business model obsolete.
To cover the costs of providing advice, renewal commission is vital for many quality intermediaries. It is important to note that many of these advisers provide discounts on initial and, in some cases, part of renewal commission so clients get a better deal. Figures I have seen cited by Intelligent Money on its website do not appear to take this into account when comparing savings you make through its service.
As very much an investment-led organisation, Whitechurch is highly conscious of the much greater danger of the effect that poorly performing investments will have on long-term returns than the small percentage of fees paid in renewal commission.
Intelligent Money appears to have no investment expertise at present and provides no guidance on fund selection. When it is prepared to offer informed investment views at no extra cost to the £35 a year subscription, it will appeal to a much wider client base.
What the renewal rebate service will do is add competition to ensure that intermediaries are on top of their game, so that clients remain willing to pay for the ongoing service that renewal commission is designed to provide. This is no bad thing.
Gavin Haynes is an investment director with Whitechurch Securities