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Getting to grips with adviser charging

The issue of adviser charging is hitting the headlines as a constituent part of the retail distribution review.

The media has given miles of column inches and gigabytes of web space to the issue of qualifications but precious little attention has been given to the fundam-entals of the business that will have to change to adapt and survive in this new environment.

In reality, adviser survival rates following the RDR will be dictated more by potential business failure 12 to 18 months after 2012 and not by the number of advisers who have not bothered, or been unable to meet, level four qualifications.

The IFP recently held a conference in London to discuss the key issues and opportunities that advisers who are fine-tuning their businesses face ahead of 2013.
Given the feedback from the community that there is a lack of support for businesses considering or part way through the transition, I was surprised we only had 75 delegates.

Those delegates benefited from an excellent day, with contributions from experts and practit-ioners who are dealing with the challenges particularly well.
However, there are some worrying trends starting to come through.

Cash rebates on platforms are important in enabling a sensible mechanism for the collection of fees. Stopping this will be to the detriment of consumers, creating more hurdles for them to access and pay for good financial planning and investment advice. The FSA needs to identify the right priorities for this legislation.

If a business is choosing to offer a comprehensive financial planning service to clients, it is becoming increasingly difficult to deliver this profitably to those clients who are in accumulation mode.

Those approaching or in retirement are more likely to be able to pay from their platform or their investments. Meanwhile, those accumulating rarely have this capacity. They would value the service and eventually be in a position to have accumulated capital but they cannot be profitable to many financial planning businesses.

There is little evidence to date of how the providers are going to support this transition with practical examples and this is where there are big challenges ahead for the core of the market.

Ernst & Young recently carried out research that showed the 30,000 advisers in the sector will fall to 20,000 shortly after the RDR takes effect. It says the reason for this is likely to be because of business-related issues and not directly linked to qualification failure.

This should be a big concern for the sector. Advisers need to lift their heads above the parapet now and prioritise activity and planning for the next 18 months or risk serious consequences.

Those that have already developed a financial planning business model have demonstrated real improvement and are well placed to take advantage of existing opportunities.

Nick Cann is chief executive of the Institute of Financial Planning


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There are 5 comments at the moment, we would love to hear your opinion too.

  1. In its current form Adviser Charging will not work.
    Nobody has bothered to look at the details and it is these that will scupper it. It needs refining and as a first step it would be helpful if the FSA admitted it and we could have a proper discussion about it.
    The problem surrounds legacy investments (trail)and how to treat those for adviser charging purposes. The FSA seems to think (bowing to industry pressure) that we can ignore the trail we get on old investments and take adviser charging out of the new. It is rubbish and against all TCF principles which the FSA so proudly promote.
    FSA please note – we were adviser charging 5 years ago……
    Repeat we were adviser charging 5 years ago….

  2. Stephen Rowland 24th May 2011 at 2:48 pm

    If RDR is a replica of the so say ‘great FEE model ‘of Solicitors – how come they are having such a terrible time in getting PI Cover & potentially small practices & Partnerships going to the wall / facing huge increases in PI?

    Also, don’t know if anybody else seen it last night but the other great Paradym of fees – Dentist – were on the Dispatches programme with a nasty smell of circumventing the NHS system into going PRIVATE (CHURNING FOR FEES?) & BRINGING DENTISTRY INTO DISREPUTE! Could the Financial Services be going the same way as all the less salubrious cases above that I have highlighted!

  3. As I have for the past 2 years, give the CLIENT the choice. Financial regulation is about products, process, fit & proper so why is the FSA regulating on remuneration structures.
    RDR will fail, in a few years time there will be a parlimentary debate on what happend to the UK financial services industry and distribution network. 90 insurance companies have ceased to trade in the Uk in the past 12 years, many household names that have traded for over 100 years.
    I expect IFA numbers to drop by 30% at beginning of 2013 and by another 40 to 50% in 2014 when the economic realities become clear resulting in firms not paying their 2014 FSA fees. The remainder of firms with established HNWC will remail but will have to pay larger fees due to lack of scale in the market to fund the FSA monster that it has become.

  4. With less than HALF willing to pay for Advice and ONE THIRD not willing to pay more than £300 (ABI)

    There is going to be a “FAMINE” if providing FINANCIAL ADVICE to the majority and for people who need it most.

    RDR will be an “OWN GOAL”

  5. My chartered accountant doesn’t ask me to sign that I agree to his fees, nor does my solicitor. Customers are not used to it and will I am sure resent it.

    Is not giving my client the choice of paying me by commission or fee taking away his human right to decide how he pays?

    And what of the argument used by apologists for RDR, who say that we charge the same, put it in the quote and have the client sign for it?

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