View more on these topics

Conundrum of charging for financial advice

There is one aspect of the defined-payment proposal which seems not to have received any airing.

Consider the following:

Two brothers of similar age live near each other, follow similar careers, earn similar amounts of money and retire at about the same time, each with a retirement lump sum of £60,000.

Brother A consults his local IFA for investment advice on £50,000 and is happy with the recommendations and the commission earned, so he recommends the same IFA to his brother.

In the meantime. Brother B has had a lucky lottery win and has £100,000 to invest. He visits the IFA, who puts together a very similar investment portfolio to the one he did for Brother A.

To Brother B&#39s surprise, the commission is twice that charged for his brother&#39s investment of £50,000.

This is exactly what the great majority of IFAs would do in similar circumstances.

On this, the FSA may have a point and one which is difficult to counter.

From the above example, we can surmise that the FSA considers that the cost of putting together a balanced portfolio for income and growth is more or less the same, irrespective of the amount of money involved – it is simply a matter of scale. What this overlooks though is what goes on in the real world.

For example, Brother B&#39s lottery win now raises such issues as inheritance tax,the need for wider diversification within his new portfolio, perhaps a review of other investments accumulated over a number of years, some gifts for the benefit of his grandchildren, some additional income which might be channelled towards the cost of long-term care insurance and so on.

Then again, if Brother B is quite certain in his own mind that he requires nothing more than an exact copy of what was put together for his brother, with no ancillary recommendations, then he should not have to pay for them without prior discussion of the cost implications.

On the other hand, if all high-net-worth clients were never charged a penny more than the actual cost of the work undertaken by their IFA, the less affluent sector of the population would become disenfranchised for the simple reason that the IFA could no longer afford to do anything as a favour for anyone. And yet, isn&#39t one of the principal concerns of the regulator and their masters at the Treasury that the less well off should not be disenfranchised as far as access to quality independent financial advice is concerned?

It is a tricky conundrum,I will admit but, as with so many other things in life, the answer is not all black or all white. Furthermore; busin-esses cannot survive on peanuts while a measure of cross-subsidy between wealthy and less well off clients is not necessarily a bad thing.

What a shame the policymakers at Canary Wharf seem to have no grasp of these simple realities.

Julian Stevens

WDS Independent Advisers,

Kingswood, Bristol

Recommended

LTC firms link up for single application

Leading long-term care cover providers Bupa, Norwich Union and PPP Lifetime Care have joined up to streamline the LTC application process for IFAs. By completing a single questionnaire, advisers will be able to get the best terms from the providers. The three have agreed to the streamlined application to reduce admin time and costs. The […]

Govt accepts six-month challenge on pensions

The Government&#39s new pension chief Andrew Smith has accepted a challenge from the Liberal Democrats that it has a “narrow window” of six months to sort out the pension crisis.Speaking in an Opposition day debate in the House of Commons this week, LibDem MP and chairman of the work and pensions select committee Archy Kirkwood […]

Leeds & Holbeck Building Society – Bonus Tracker

Wednesday, 3 July 2002 Type: High interest account Minimum-maximum investment: £5,000-£250,000 Interest rate: Bank of England base rate plus 1% until January 1, 2003, thereafter Bank of England base rate until January 1, 2004 Term: Until January 1, 2004 Offer period: Until further notice Withdrawal penalties: No withdrawals permitted until February 1, 2003, thereafter one […]

Real waste of our real time

Unsolicited real-time financial promotion to a Potential Intermediate Customer (sorry, “letter to the editor”).Dear “Potential Intermediate Customer,” I am issuing this “unsolicited real-time financial promotion” to invite you to a “solicited real time financial promotion” designed for potential “intermediate customers” and “private customers” at the Jargonfree Hotel in Jargonfreetown. We have classed you as an […]

Craig Inches – thoughts on how to preserve capital and generate income in an inflationary environment

In this short video, Craig Inches, head of short rates and cash at Royal London Asset Management, offers his thoughts on how to preserve capital and generate income in an inflationary environment. Watch the video in full The value of investments and the income from them is not guaranteed and may go down as well […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment