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's surprise, the commission is twice that charged for his brother's 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's 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't 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.
WDS Independent Advisers,