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Fee for all?

An IFA&#39s business should be about selling advice not products, say fee-based advisers.

A growing number of IFAs want the professionalism of their role recognised. The public expects to pay fees for work carried out by solicitors and accountants so why do should they balk at the pros pect of paying fees to IFAs?

Many advisers believe the fault lies within their own industry. Consumers have become used to not paying directly for advice.

The goodwill nature is also open to misuse. Con sumers can seek advice from an IFA without obligation to buy a product.

Glasgow IFA Millbrae Fin ancial Services managing dir ector Carl Melvin says: “If I could change one thing about the profession it would be that we should not give away advice for free – it does not make sense. No one would go to see a lawyer and not expect to pay for it.”

Melvin thinks consumers need to understand the value of the service IFAs provide and pay for it.

He says: “A client is not buying a pension but future financial security. IFAs are able to set them on the right path to financial security. You cannot underplay the value of what IFAs do and how this affects the lives of our clients.”

Most fee-based IFAs give their clients the option of using commission to offset their fees. The client will be charged for all work done on their account. Others charge a retainer fee which is an important way for an IFA to get regular cashflow.

Fees would also suit people who would like an ongoing relationship with an IFA. Advisers need to ensure that timesheets are kept and cli ents billed accordingly so they can see exactly what service they are getting. IFAs can also use the sheets to ensure they are using their time well.

Northumberland IFA Clan cy&#39s Financial & Business Advisers senior partner Jim Clancy says: “Clients are happy because timesheets are transparent and show you add value to the process. From an adviser&#39s point of view, it shows whether the client is profitable.”

Fee-based IFAs believe the profession has to change with the times. The sector is increasingly becoming burdened with extra costs. Cuts in commission levels and moves towards charging clients is a vital step to ensure the industry remains healthy.

Melvin says: “As much as it is wrong for us to missell to a client, it is wrong of a client to expect advice without paying for it.”

The argument for commission

Consumers are still very sceptical towards paying fees and, although some IFAs want to head in that direction, they are frightened of client reaction.

IFAs serving a general market say most consumers are not prepared to pay fees and imposing a fee-based system could turn a large chunk of soc iety away from seeking advice.

Most consumers still believe advice should be free even though disclosure rules mean a client is told about all the charges when buying a product, including commission.

Consumers resist paying fees for advice. Paying for commission thr ough the charging structure of a product allows them to step further away from the idea of paying for adv ice and IFAs say most consumers prefer this.

According to Bas ildon-based PMI Inde pendent Financial Adv iser director John Stewart, many clients will not pay fees bec ause of their perception of the industry.

Stewart says: “Many people will not pay for an insurance policy from what they view to be an insurance man. This is life. It is not ideal and the industry needs to become more of a profession.”

It is people with only a few thousand pounds to invest rather than more wealthy and corporate clients, who want what they perceive as “free” advice. Stewart says these people are not ready to pay fees yet and the scandals that have rocked the industry have not helped. He says the reputation of IFAs has been tarnished by the pension review and the recent endowment warnings.

Consumers just do not yet see IFAs on the same professional playing field as solicitors or accountants.

A move away from commission could cause a lot of financial pain for IFAs and they fear they would lose clients. Many IFAs are trying to introduce retainer fees for new clients, with the fees rebated against future commission but this can be hard to introduce with existing clients. It also means that IFAs have to turn away clients who refuse to pay fees, which can be a tough decision.

Consumers are under the impression that commission payments mean IFAs have been paid for the duration of the product and they should not be charging for any further services. Goodwill from IFAs can help the expansion of their businesses as clients are likely to recommend them.

Many IFAs have been working in the industry for a long time and have built up strong relationships with clients which have been built on a commission basis. When clients recommend them, it is on these terms so for many IFAs it would mean turning their business upside down.

Retirement Options Tees side & North Yorkshire IFA Harry Fletcher believes fees would be more expensive for some clients. He says: “I have to spend time travelling to see them but it is part of the goodwill service.”

Commission-based IFAs are generally not opposed to moving towards fees and are more than aware of the need to head in this direction but are reluctant to do so without the support of their clients.

Stewart says IFAs know commission is not a perfect system but the public are not ready for fees. “In a perfect world it would be wonderful to charge fees but it is just not realistic at the moment.”


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