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Cost compulsion

The FSA’s code on fees is pushing in the wrong direction

Julian Stevens
Julian Stevens

Ten years ago, I decided I would no longer produce reports and recommendations for prospective clients on a purely speculative basis. That did not mean moving to a pure fee model but if I am to provide well thought out, written advice prior to the presentation, still less the sale of a product, clients must pay something up front for my time and expertise.

If they proceed, any com-mission generated can be adjusted to reflect fees already paid. If the client wants to keep our relationship purely fee-based, that option is explained and offered at outset. To date, not one single client has.

How has this approach worked in practice? For a start, it weeds out any time-wasters early on. We may have lost a few potential customers who might have transacted business with us on a purely commission basis but I believe those who are serious about taking advice will pay a fee up front.

I was due to visit a prospective client recently to discuss retirement provision, of which, at age 48, he has none. I sent him advance confirmation of our appointment, with notes explaining the format of the first meeting and said if he was going to commission me to research, formulate and commit to paper my recommendations, a fee would be chargeable.

His wife phoned to ask how much the fee would be. Rather a difficult question to answer, given I had yet to meet herself or her husband or compile any sort of fact-find. But I hazarded a guess at £100, assuming we would be starting with a clean slate of no retirement provision.

The husband later phoned to ask why I needed to charge a fee, given I would be paid “a booking fee” as he called it, when the business went ahead. I asked him what if he decided not to proceed and how could he know any commission payable will cover our costs.

He called the appointment off and that was the end of that.

The loss of the odd pros-pective client is not going to kill my business but what this tale tells us is how incredibly out of touch the FSA is in insisting that fees by compulsion for all services to be provided by IFAs are a way to achieve just one of the objectives of the statutory code of practice for regulators, from which I quote: “The Government believes that regulation and its enforcement should be proportionate and flexible enough to allow or even encourage economic progress.”

Could someone from the FSA please explain in just what way its ongoing regulatory strategy, not least as embodied in a good deal of the RDR, along with its ever increasing regulatory levies and burden of red tape, is either proportionate or flexible enough to allow or even encourage economic progress?

Julian Stevens is a partner at Harvest IFM


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  1. The introduction of fee based Independent Financial Advice means those people whose incomes are at the lower end of the scale will no longer be able to have access to a good IFA. The couple clearly thought that £100 could be best spent elsewhere and at 48 he will probably go without any kind of pension provision. Eventually becoming another state supported pensioner. Well done the FSA.

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