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Fees and fireworks

For more years than I care to remember, I have been selling glow sticks at a local fireworks display in aid of my Round Table’s current charity.

Typically, we meet up at a local pub. This year, as we unloaded all the glow sticks while drinking al fresco, the local police happened by. Very rapidly, it became clear that we were not seen as a threat to public order. Rather, the copper had lost his cadets.

At the moment, it seems that commission is the feature of the industry that most consumerists and the regulator would like to lose. I can understand their mantra concerning bias but I do not buy it. The key factor in eliminating bias is for the customer to acknowledge that advice has value. If all the adviser is seen to have done is to arrange the purchase of a product, there must be bias by definition unless the firm is providing pro bono advice.

The Association of British Insurers has had many chances to take the debate on remuneration forward but has opted to put it on the “too difficult” pile one time too many. Those direct salesforces that remain would prefer the situation to stay as it is. However, the idea that the debate was the sole need of the IFA sector simply insults our intelligence.

I am not saying the entire IFA contingent is not dependent on commission – far from it. It is the real lack of an alternative for the providers’ own salesforces that stalls the move to fees.

The continued use of embedded value does not help as it simply implies greater value in the early part of a contract than really exists. Were providers to count income only for the first year, they would have the choice between losses and to reduce commission. This stark reality is long overdue. To blame the IFA for their current excesses is frankly hilarious.

If a provider charges 1 per cent to a contract yet pays 5 to 6 per cent in commission, the client can take advantage of this to pay all or a major part of the fees due. More commonly, this level of commission simply defers the necessity of any consideration of a move to fees in the immediate future.

As someone once said profoundly: “We are where we are.” Any move to fees has to be a transition and the idea that it can happen overnight is naive in the extreme. But any attempt to smooth the transition with direct financial support from providers would be most unfair on those of us who have taken the cold turkey approach in the recent past.

We need to ensure that, whatever is decided, it is fair for all. Perhaps one solution is some sort of low-cost finance from providers for a limited period.

What is certain is that to remain an IFA you will need to move to a fee basis. We will need to ensure that the public are encouraged to value our services. To achieve that, we must ban the use of the term “free advice” and show exactly what we do in the advice process. Finally, exposing the cost of the business itself would be no bad thing. It is all very well saying our services are not fully appreciated – we need to communicate to make this happen.

We never did discover if the cadets were found. But while we are on a police theme, I recently attended an ice hockey game in Boston, US. On trying to buy a half-time beer, they insisted that I proved I was over 21. What that says about the average Bostonian under 21, I would not like to say, or maybe I am well preserved after all.

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