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Fee income is essential to build strong business

I read Martyn Parfect&#39s letter on trail commission with great interest as I find it incongruous in this day and age that there are still IFA practices which continue to cling to the wreckage of commission-based advice (Money Marketing, February 26).

Over the last few years, we have seen the traditional model under threat. Commission incomes have been on a downward trend while the cost base of running an IFA practice has been going in the opposite direction (not the best business model to go to your bank manager with). This is a point that Martyn refers to.

Many practitioners have already decided that to survive and prosper in the future, they will have to rethink the income stream to the practice. Unless fees, along with all the other types of income (commission, fee offset, trail, fund-based and so on) form part of the IFA practice&#39s income, it is very hard to see how that practice can be viable in the future.

The days of large (mainly unprofitable) client banks and practice income by way of high commission generated by the few cross-subsidising the majority of clients cannot continue. It is simple maths.

IFAs need to consider how they can work in a less commission-reliant environment and I am very surprised that Martyn has not already taken steps to address this problem as he appears to have already identified many of the problems of the traditional IFA business model. This model that has served us so well for so long will not be able to take us forward.

The idea that product providers will continue to dig very deep into their pockets (which are now nowhere as deep as they once were) is very unlikely. They themselves are facing major challenges in not only maintaining profitability but also in providing a return on capital invested back to their parent companies. Figures of 15 to 20 per cent on capital invested are not unusual.

We have all seen the withdrawal by providers of the services they used to provide, broker consultants are becoming rarer every day and the large corporate jolly for the majority of IFAs is now a thing of the past.

IFAs in the future will have to stand on their own two feet and not expect to be baled out by higher commission. It is simply not going to happen.

There are many IFAs throughout the UK who are even today contemplating how they can offer their clients the service they used to and, more important, get paid for the work that they do.

There is no need, however, to reinvent the wheel. Fee-based Advice has already helped numerous IFA practices develop a strong and sustainable business model for the future.

We believe there is not one prescriptive way of operating under this new model. Why should there be? After all, we are all starting from a different point and we all have different skill sets, overall objectives, clients and so on. Whatever position the IFA practice is along that journey of transformation, we can help.

If Martyn would like to contact me, I am sure that we can help him address the very serious concerns he has.

Nick Peters Sales director, Fee-Based Advice

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