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Find the middle ground over fees and commission

I have considered with interest the debate over commission v fees and it seems to me there are three camps.

The pure fee-chargers are convinced that their way is the only way to be a truly independent adviser and that anyone who does not share that view must, therefore, always be pushing to sell something.

To an extent, that is hard to deny, certainly by those who never charge fees, for nothing can be for nothing.

The problem with a religiously fee-based business model is that it denies the customer choice – one of the great and good current buzzwords in our industry.

What is wrong with the customer being able to choose how he pays for the services of his adviser, provided the amount of the adviser’s remuneration isfully disclosed and understood by the customer?

Why should the customer have to pay the adviser the same amount of money, irrespective of whether or not he decides to proceed with a recommendation that involves putting money into a product?

After all, a good proportion of the overhead for an adviser’s practice is processing product applications and then seeing them through to completion, not to mention the subsequent long-term financial responsibilities of each item of business. £500 if you do, £500 if you don’t does not equate fairly to the adviser’s overheads.

Another consideration is whether or not the customer should be charged a fee for the adviser undertaking reviews of his affairs proactively. On what basis do you do more fee-charging work than the client might have been given to expect at the outset of his relationship with your firm? We must never forget the valuable exemption from VAT enjoyed by commission.

There is, of course, a middle way that I decided some years ago to adopt for my practice and it has worked very well (although I still wish we were writing more business).

We charge prospective new clients a fee for our initial report and recommendations, which often covers quite a lot of non-product-oriented ground, with (moderately) discounted commission on whatever products they may effect as a result. Hardly anyone, except those who want free advice, has any problems with this modus operandi.

People accept that we have to be paid for the services we provide and that any business has overheads.

In a world in which many people simply do not or, more to the point, cannot afford to pay full fees for all the services they may need from an IFA, a mixture of fees and commission strikes a sensible and practical balance between what the FSA seems to want to see and what the ordinary man in the street can handle.

All that is required is a common-sense approach rather than polarised opinions at opposite ends of the spectrum.

Julian Stevens



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