So now it is trail commission. I wondered what the next “scandal” might be and, having seen the headlines in the money sections of the national press along the lines of how greedy advisers rip off customers by £140m a year, the waiting is over Let me first say that if customers are effectively being charged by trail commission and their advisers are doing nothing for them, this is a practice that should be looked into.
However, the brush that tars us all has once again been primed and I, for one, wish to be distanced from it.
The worrying part for me is that Treasury select committee chairman John McFall is quoted as saying: “For advisers to receive trail commission, whether or not they are providing any ongoing advice to the client, is unacceptable.”
I do not want to appear smug but, in our practice, if a client has, for example, a pension portfolio of, say, around £200,000 and is happy for us to receive around 0.5 per cent trail or fund-based commission, then this amount of around £1,000 will pay for us to do something such as ensure that the asset allocation is correct for the client and review the volatility and performance relative to its sector and its overall suitability for the client, particularly in the case of drawdown or phased arrangements.
My paraplanner's time, research and analysis time, meeting time, report or financial plan updates are included in the commission we receive.
If it transpires that the £1,000 is in excess of the work done, then the balance can effectively be carried over for other work requested and offset against fees otherwise payable. If the £1,000 is not enough for the work carried out, then the client will receive a bill for the balance.
On this point, I am sure we have all been guilty of not charging clients enough in the past but I have yet to see headlines along the lines of greedy clients ripping off IFAs by demanding free advice. More chance of my beloved QPR winning the league.
I sincerely hope that Aifa or the LIA/Sofa will put this point across in the time they have to respond to the select committee and that once again a valuable and legitimate income stream for IFAs is not attacked.
As the proprietor of my own practice, the costs of running my business have rocketed again this year and, although we are fee-based, commission remains a major factor in client arrangements and suits many of them. The FSA has already indicated that £150 an hour is too much for me to charge so, at the current rate, we will have little commission income, hourly rates dictated to us by the powers that be and more clients who are excluded from advice than there are now.
Paul Spires Director,Sound Financial Planning,Billericay, Essex