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Face up to fees

For too long, IFAs have been waiting to be convinced that the FSA was right when it said that consumers are prepared to pay a fee for financial advice. If the latest research is to be believed, they will now be even more sceptical.

A recent survey by market research firm Nunwood has revealed that 80 per cent of the public are not prepared to pay a fee for financial advice and only 5 per cent said they would pay over £100. But should we really be surprised by this finding?

Clearly, if you were to ask the average person whether they would prefer to pay up front for financial advice rather than stick to their current arrangement, where the advi-ser receives some kind of commission payment from the product provider, you would expect most to say no.

While it is true that commission-based payments in some circumstances may be preferable, if you turned the question around and asked the average person whether they would like to pay a fee, which would guarantee them unbiased advice, rather than making commission-based payments, which may lower the end value of their investment, I suspect many would think again.

This kind of consumer research reveals nothing we did not already know. At worst, it gives some IFAs another reason to delay taking action.

Of course, there are other reasons why IFAs have been less than quick to respond to CP121. Many have been holding out in the hope that a compromise might be reached which would allow them to keep their independent badge without sacrificing commission-based remuneration.

The IFA industry has recently been accused of having a lack of vision and failing to take an active enough role in seeing its way through the changes proposed by CP121. Perhaps this focus on finding a compromise solution which allows IFAs to effectively stand still is the reason why.

There is also a very real danger that by taking this approach, the industry may find itself facing a brick wall when the legislation is passed next year. They will be unable to find a way over or round it because they have simply run out of time.

While the industry may be understandably reluctant to let go of the chance of compromise altogether, wise IFAs are also considering their options as they stand at the moment. In many cases, they have already decided whether they would be willing to settle for tied status or whether they are prepared to take the road to a fee-based future. While it is true that most IFAs have at least weighed up the options, only a few have taken action.

The stark fact is, however, that even if commission is retained for new independents, it is clear from CP121 and Sandler that this will have to be expressed in fee terms and justified to the client. All this points to commission rates being on a sharp downward path over the next few years.

Since IFAs claim to have no time now to consider their future, how much less time will they have when they are having to work three or four times as hard?

Recognising the growing importance of ensuring high standards of independent financial advice, the FSA has recently announced plans to develop a single framework of qualifications for the financial services industry. While the nature of these changes is not yet decided, it is easy to see how the fee-based adviser will, in the future, need to demonstrate their ability to provide independent investment advice to set themselves apart from the tied or multi-tied operator.

IFAs making the transformation to fee-based advice will also need a programme of training and support to help them restructure their business. In most cases, major changes are needed to allow the adviser to spend more time giving advice, with the right level of back-office support. The need for training does not stop there as IFA colleagues and back-office staff will need training in the new fee-based approach, too.

Many IFAs also need advice on how to transform their client base, selecting key clients who might potentially be interested in the fee-based alternative and offloading others to make room for new fee-based referrals.

Most IFAs are also looking to become members of a body which can represent their interests and recommend solutions that work for them.

To help IFAs adopt efficient systems, new technology is now available which will enable the adviser to demonstrate the value of fee-based advice virtually at the touch of a button.

In addition, there are a range of new systems available which are designed to support the IFA in building closer ties with professional advisers – a valuable source of referrals for the fee-based adviser of the future. Access to these systems could be vital for advisers seeking to take advantage of the new market opportunities.

Instead of waiting for the compromise that could never happen, the industry should take hold of its own future and create its own support structures to ensure not only survival but lasting profitability.

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